The Benefits of Salary Sacrifice Car Schemes
May 31st, 2022
In a working world where employers are having to come up with increasingly creative ways to attract and retain talent, employee benefits schemes can be a significant differentiator. One of the most popular is car salary sacrifice.
Here, we’ll explore why employers should consider salary sacrifice schemes, alongside the benefits to their employees.
What is a salary sacrifice car scheme?
Salary sacrifice allows the employee to pay for a non-cash benefit out of their gross salary – i.e. before tax and National Insurance are subtracted. Car salary sacrifice is one such benefit that gives an employee access to a car of their choice, giving them the benefit of those tax and NI savings – one of the most significant advantages to salary sacrifice car schemes (more on that below).
How do car salary sacrifice schemes work?
Car salary sacrifice schemes can work for businesses to attract and retain talent by offering them a better deal on available vehicles. In that sense, the agreements are typically managed at the HR level as part of an employee’s contract. However, a salary sacrifice car is always classed as a company car. In those respects a fleet manager may be involved, considering the business has a duty of care towards the car and the employee as a company driver.
By setting these agreements up as either non-essential (for non-business use) or essential (for or including business use), companies are able to offer employees a wide degree of flexibility in the way they approach car salary sacrifice. Both are compelling reasons why employers should consider salary sacrifice schemes – and at GKL, we can help your business implement either or both approaches.
Additionally, employees with a car allowance can opt to use salary sacrifice independently, making use of the significant benefits below. In those cases, employees can work with us to approach the contract in the way that works best for them and their employer.
Three big advantages to salary sacrifice car schemes
Whichever way they are offered by an employer, the benefits of salary sacrifice car schemes are significant, and well worth exploring.
1. Significant financial savings for employees AND employers
The first major advantage to salary sacrifice car schemes is financial. For employees, salary sacrifice cars present significant savings on both tax and National Insurance. However, for businesses there’s also a saving on National Insurance.
So for businesses, offering a salary sacrifice car benefit can be a major way to attract people who want to lease a new vehicle and save money while doing so. Conversely, not offering a salary sacrifice car benefit could in fact count against your business when trying to attract new talent, or retain existing valued employees. That’s a big reason why employers should consider salary sacrifice schemes.
2. Maintenance and insurance are built-in to the agreement
The second notable benefit of salary sacrifice car schemes is the time, effort and expense saved on admin and maintenance of the vehicle. The employer leases the car and the employee effectively pays the cost of the lease by a contract of employment variation with the employer. With a lease the maintenance is built into the agreement so this makes for a fixed service cost and no hidden extra charges.
So things like MOTs and repairs are covered under the salary sacrifice agreement. The only thing drivers do have to cover is the cost of fuel. If the salary sacrifice car is being used as a company car, the maintenance and admin savings are also beneficial to the business versus giving an employee a company-owned vehicle where those sometimes-unexpected costs are shouldered by the company.
3. Sal sac car agreements are cost neutral for employers
This one is strictly for employers. Because the employee pays all leasing costs, salary sacrifice costs employers nothing to offer it as a benefit. Indeed, when you consider how the attractive savings on offer with salary sacrifice can be used to help attract and retain talent, the benefits of salary sacrifice car schemes are vast, and the downsides are practically none.
Can I get an electric car on salary sacrifice?
You can – and the good news is that the savings can be even greater with an electric car. Employees can expect to save between 30-40% of costs through tax and NI, while a Benefit in Kind (BiK) tax rate of just 2% for EVs only adds another advantage to salary sacrifice car schemes. Add to that the fact that EVs classed as company cars will help fleets lower their emissions to meet European targets, and you have another reason why employers should consider salary sacrifice schemes for their business.
Is salary sacrifice better than a company car?
One of the big advantages to salary sacrifice car schemes is that they are compatible with traditional company car leasing arrangements – meaning businesses can offer both to employees. Those employees wishing to take advantage of a car owned or provided by the business can do so, while those wishing to lease a car through salary sacrifice can enjoy the benefits of the extra tax and NI savings – particularly on electric vehicles.
Set up your salary sacrifice scheme today
A salary sacrifice car scheme costs nothing to set up and can be incredibly easy to implement – especially when you work with a brand experienced at implementing such agreements.
At GKL, we’ll work with your HR team and fleet managers alike to introduce a salary sacrifice scheme for your business and staff– whether that’s a single employee with a bespoke arrangement, or your entire workforce.
Visit our salary sacrifice page to learn more, or get in touch to work with us on your salary sacrifice scheme.