While every business is unique and operate across many different industry sectors, one thing that unites every business is that the people responsible for the finances are not often fond of ideas that will cost the business money, or that offer no certainty over a return on investment. This is why capital investment is such a complex area and expanding a business sees fewer success stories and more organisations eventually going to the wall. But with salary sacrifice car schemes, there are considerable financial wins to be had, and your calculations can be done with relative confidence.  

The big wins with salary sacrifice car schemes are the green benefits for the environment, a great employee benefit for the staff, improved morale and inclusion and some cash savings for the business. The finance team will be most attracted by the bottom-line savings and in many respects, these are the easiest to calculate, but there are other issues related to introducing a salary sacrifice car scheme that the business needs to consider closely and which can often be overlooked. In this article we will outline how the finance team should approach salary sacrifice and what your HR team needs to keep a close eye on.  

The financial benefits of salary sacrifice car schemes 

Although the financial savings are mainly enjoyed by the employee, the business does benefit too.  

• National insurance saving – One employee taking up a salary sacrifice car scheme on an electric vehicle (EV) means they sacrifice a portion of their gross salary each month to pay for the lease of the car. There is no cost to the business. This also means the employee is paying less income tax and national insurance because their gross salary is reduced. And as a knock-on benefit of this, the company is also paying a smaller national insurance contribution for that employee. Over a typical three-year lease term this can save the company considerable money.  
• No ownership – There is no capital cost to the business as fleet vehicles are not owned and they are not a depreciating asset on the books. There is also no disposal cost at the end of a lease, the vehicle is simply returned to the lease company.  
• Flexible lease deals – Lease contracts can be variable between six to 48 months, which makes contracts easier to manage for the fleet manager.  
• Grey fleet management – It is much easier for the fleet manager to control grey fleet costs via salary sacrifice, i.e. costs for vehicles not owned by the business but used for business purposes.  
• Recruitment – Salary sacrifice car schemes are known to promote loyalty and inclusion, which helps to retain talent and reduces the burden of recruitment and training costs.  
• Productivity – Employee benefits such as salary sacrifice car schemes motivate employees and this improves productivity and ultimately bottom-line profits.   

The business case for salary sacrifice car schemes therefore includes all these financial benefits, alongside the improved green credentials, improving the financial wellbeing of the employees and promoting inclusivity within the workforce, ultimately improving the public reputation of the organisation.  

The salary sacrifice issues often overlooked by HR 

While the positive benefits of salary sacrifice present a strong case for pushing forward, and this would normally be supported by the finance team, there are other issues to consider which fall more in the realm of other departments, notably human resources. Here is a brief outline of what you need to remember: 

• Eligibility – You have to ensure the portion of salary sacrificed doesn’t take an employee below the national minimum wage. This could lead to a fine and other penalties for the business.  
• Pension – You need to be aware of the lower earnings limit and how this could impact on an employee’s state pension eligibility.  
• Information – Employees need to be fully educated on salary sacrifice, both to attract them to the scheme and to ensure they fully understand the financial impacts.  
• Contracts – Salary sacrifice counts as a change to the employee’s renumeration status, so this should be reflected in an updated contract of employment.  
• Culture – Information and communication have to be managed carefully to ensure there is no confusion amongst the workforce, which could impact on morale and the company culture. Salary sacrifice should be fully inclusive and open to everyone, but also should be optional, and this needs to be made very clear.  
• Preparation – HR departments need to be fully prepared to answer questions relating to BIK tax, national insurance, contracts and pensions. Employees need to feel fully supported in the decisions they make and HR plays a big role in that, otherwise this could lead to low participation and the scheme not working effectively for the business.   
• Compliance – HR should fully investigate the compliance requirements in terms of tax, national insurance and contracts.  

If you are considering a salary sacrifice car scheme for your business, contact our team today for all the supporting information and advice you need. We can help you prepare the business case for introducing the scheme and can then help you educate employees, roll the scheme out and manage the implementation.