How to Successfully Implement Salary Sacrifice Schemes

Even though salary sacrifice car schemes can be inexpensive to introduce, bring about numerous money saving benefits, and result in a more motivated workforce, actually implementing this course of action will need careful consideration.

First of all, employers must recognise the facts and figures associated with this approach in order to ensure it makes sense from a financial perspective. Then, they will need to know that employees are happy to take part in a scheme where their pay packet is reduced in return for a non-cash incentive.

However, once these boxes are ticked, there is no reason why a salary sacrifice car scheme can’t be successfully implemented with little to no cost for the business. But what steps will you need to take?

Coming up with a business plan

First and foremost, you will need to come up with a business plan, which looks at every detail associated with this kind of scheme. Your initial concern will be finding a provider that can manage the entire process, from sourcing and servicing cars to handling breakdowns and ensuring safety.

Another consideration is why you are choosing to adopt a salary sacrifice scheme, which should not necessarily be all about the financial implications for employees.

“A business case can include that it’s cheap and that employees get a brand new, fully maintained car, but that is just half of it,” notes Paul Hollick, chief commercial officer at provider Alphabet. “The best schemes are set up to tick an organisation’s green agenda and help cut organisational costs.”

Once a watertight plan has been developed, which also takes into account factors like scheme modelling and policy decision, the organisation must then obtain HM Revenue and Customs (HMRC) approval before proceeding any further.

Understanding tax breaks

With a salary sacrifice car scheme, both organisations and employees can enjoy favourable tax breaks. Because the employee gives up a portion of his or her gross salary in exchange for a car, significant savings on tax and National Insurance (NI) can be made.

According to Paul Murdoch, business development manager of salary sacrifice at Hitachi Capital, a well-implemented scheme can save companies up to £500 per employee over a three-year period in NI contributions alone.

Employee savings are based on the sum that has been sacrificed and the value of the car, which is subject only to benefit-in-kind (BIK) tax.

However, businesses will need to be aware that the low tax band of 5 per cent now applies to cars emitting 50g/km of carbon dioxide (CO2) or less, which makes salary sacrifice schemes featuring electric vehicles a very attractive proposition.

Effective communication with employees

If you want members of staff to opt in to a salary sacrifice scheme, you will need to regularly relay the benefits to them in an effective and encouraging way. There are various ways you can go about this, including a staff magazine or e-newsletter, intranet system, email updates, text messages, regular meetings, employee forums, and open days.

Mike Moore, director at Deloitte Car Consultancy, believes that constantly talking to staff about the advantages of a salary sacrifice car scheme is crucial, but employers must get it right first time for two reasons.

“Firstly, so employees are aware of it and understand the implications,” he notes. Also, there is a duty of care for the employer to let staff make informed decisions.

“Employers should not give personal and tax advice, but should inform employees that they are giving up salary and are getting a benefit for it, but this could impact other things, such as tax credits and their state pension entitlement. Communications have to be clear.”

Potential issues to be aware of

The advantages of salary sacrifice schemes might seem appealing, but this doesn’t mean to say there aren’t obstacles to overcome. Two of the biggest risks that both organisations and employees face relate to parental leave and the cost of early termination.

During maternity and paternity leave, it is an employer’s contractual obligation to continue with the provision of a salary sacrifice scheme’s benefits, even if the employee suffers a significant drop in pay.

Moore adds: “One of the issues organisations are reluctant to put in [to schemes] are conditions for unpaid leave. Employers can build things into their policy, such as pots of money to cover any costs incurred.”

And even though early termination fees pose a risk to businesses, Roddy Graham, commercial director at Leasedrive, believes salary sacrifice schemes can boost employee retention numbers. “If an employee leaves, they either give up the car and pay the early termination fee, but most tend to stick with their employer,” he says.

Future of salary sacrifice car schemes

As mentioned previously, the future of salary sacrifice car schemes could see more and more organisations offering their employees electric vehicles due to the extensive financial benefits.

Damien James, chairman of the Association of Car Fleet Operators (ACFO), says that in demand models produce C02 emissions of 94g/km or less, which allows employees to capitalise on BIK tax brackets of 10 per cent and 13 per cent.

“Low CO2 emission cars are best suited to salary sacrifice schemes and the numbers are increasing day by day,” he cites. “As emission laws change, I can only see the pool of [greener] cars getting bigger.”

In addition to agreeable BIK tax brackets, salary sacrifice car schemes are favouring electric vehicles due to government grants of up to £5,000, and low recharging costs as well.

Implementing a successful salary sacrifice car scheme

Although salary sacrifice car schemes can be highly advantageous for all parties, employers need to be sure that their employees will opt in to this incentive through individual profiling of the workforce and effective communication methods.

Details of which should be included in a business plan that also looks at potential providers, financial implications, and the tax breaks associated with this kind of scheme. But once these have been accounted for, as well as the risks associated with parental leave and the cost of early termination, it will be possible to successfully implement a salary sacrifice scheme for cars.


Leave a Reply

  • (will not be published)

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>