Although the benefits of adding electric vehicles to benefits schemes are increasingly well recognised, many employers have concerns about the legal and practical risks. How can these be overcome?
Offering electric vehicles as part of your company car allowance or salary sacrifice scheme has demonstrable benefits both to the environment and to your employees’ pockets.
Research from the Green Insurer found that 87% of motorists who have switched from a petrol or diesel car to an electric model have saved on their annual cost of driving, with just under a third saving more than 30% a year. For employers, costs can be cut by around £1,300 per year per employee on national insurance contributions.
But offering EVs as part of your benefits package does not come without some risks. Knowing what they are and having a strategy to overcome them means they can continue to offer advantages for the company and workforce alike.
What are the main risks of offering an electric vehicle scheme?
Offering an electric vehicle via salary sacrifice means changing the terms of an employee’s contract, to which the employee will need to agree.
The main limitation for employers is that employees’ net pay cannot go below the National Minimum Wage.
This means the employer must put procedures in place to cap the salary sacrifice deduction so the net pay does not fall below hourly national minimum wage rates (£11.44 for those over the age of 21, and ££8.60 for 18-to-20-year-olds).
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Salary sacrifice works by the employee agreeing to receive a ‘Benefit in Kind’ and so paying less tax and national insurance on their reduced salary. Benefit in Kind for electric vehicles is very low – currently charged at 2%, and will increase by 1% each year up to 2028.
Bear in mind that the employer may also be offering other salary sacrifice benefits such as a pension or cycle-to-work scheme – and the net pay is the amount after all of these benefits have been taken into consideration.
However, this does mean that employees with higher salaries will be able to sacrifice more of their wages and get bigger tax savings. This can help retain talent, particularly at senior level.
What happens if pay is variable?
Employees whose pay is variable are eligible to get an electric vehicle via salary sacrifice, but the same rules apply: they cannot join the scheme if the cost would take their earnings below the national minimum wage.
The key is to ensure that the employee can afford any salary sacrifice payments they sign up for, and that the basic salary after deduction is consistently above the NMW threshold.
If employees get a bonus so their pay goes up, they pay tax and national insurance on this as they would on their normal salary. If it’s a lump sum, they’ll pay more the month that they get their bonus, but over the year their tax payments will adjust to the right level.
What happens if an employee leaves or circumstances change?
Although the lower costs of accessing an electric vehicle through a salary sacrifice scheme can be a valuable retention tool, there will always be other factors why someone decides to take on a new role in another company or has to leave for personal reasons.
A salary sacrifice agreement is a contract just like any other, and most will include fixed terms on when the agreement ends. If the employee leaves their employment before then, the employer will need to arrange for the vehicle to be returned because the contract and finance is organised by them.
There are a number of ways you can protect to minimise the risk of early termination of the agreement, however. One option is to look for early leaver protection or insurance with your provider. This can be built into the monthly cost of the vehicle.
“This question always comes up with new customers,” says Oliver Boots, chief commercial officer at Octopus Electric Vehicles. “Employees could be leaving due to redundancy or a number of reasons. We offer early leaver protection which allows employers to return a number of cars each year at no cost. We can also cover the cost of payments during maternity, paternity or sick leave.”
Alternatively, an employer could use the national insurance savings from the salary sacrifice arrangement to pay for early termination fees with the finance company, or the employee could retain these savings themselves to self-insure against this risk.
Because the cost of replacing an employee (and recruiting and onboarding a new one) can range between £6,000 for a junior vacancy and as much as £19,000 for a manager position, according to the CIPD, early termination fees for salary sacrifice schemes could seem low in comparison.
Can an employee buy the vehicle or can it be transferred?
If an employee decides to move to another employer, it is sometimes possible to transfer their vehicle leasing agreement to their new employer. This is called novation – the transfer of a lease agreement from one business to another.
“If someone resigns, it is possible for them to buy the car but most people walk away,” explains Ali Argall, business development director at Tusker. “Some schemes allow you to take it to another employer, and we do a lot of novations. This is something employers should ask about, as it keeps the employee at the heart of the benefit.”
How can we address risks around infrastructure?
A survey by MakeMyHouseGreen in 2023 found that the UK government is around 12 years behind schedule in terms of rolling out EV chargers. Its target of installing 300,000 chargers by 2030 would require it to improve installation rates by more than 180%, and if it continues at the current pace, we will only have this number by 2042.
That said, most EV scheme providers can help with setting up home infrastructure such as charging points for electric vehicles, either offering discounts or through direct links to providers. Employers increasingly recognise that offering charge points within their own parking provision can be attractive both to employees and visitors to the company.
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One of the key considerations for employers is to dispel any preconceptions around EV infrastructure that might be putting staff off joining a scheme, adds Argall from Tusker. “The average commute is around 16 miles so employees won’t need to charge their car at work every day – it’s more like every two weeks,” she says.
“Helping employees to bust some of those myths around charging being difficult or them having to do it every time they leave the house is crucial. It’s a different mindset that we fall into.”
