12 Steps to Successful Salary Sacrifice

1 Decide if it’s right for your company

A company needs a significant number of employees for a salary sacrifice car scheme to work.

“If the numbers are too small it’s difficult to make it competitive,” says Matt Dyer, commercial director at LeasePlan.

Take-up is typically 3-5% of eligible staff so potentially you need several hundred employees to make the scheme worthwhile. Otherwise discounts on the cars will be hard to secure.

Staff wages also matter as employees can’t enter into salary sacrifice if it means their pay drops below the minimum wage.

“You could have 1,000 employees, but if most of them earn just above the minimum wage the scheme won’t work for that company,” Scott Neilson, account manager at ING says.

A high staff turnover could also make a company unsuitable.

“Organisations with a high staff turnover have increased levels of administration in terms of the early termination of vehicles and this presents a different set of challenges,” says David Hosking, Tusker managing director.

Phil Peace, director of sales at Hitachi Capital Vehicle Solutions, adds: “We had one customer looking at salary sacrifice, but the staff turnover was 18% so we didn’t believe it would be right for them. Average turnover is probably 10-12%.”

Organisations need to consider VAT recovery

If they are VAT exempt or only have partial recoverability of VAT, the net cost to the employee will be slightly higher than for organisations which have standard VAT recoverability.

It also helps if a company already has a “flexible benefits mentality” – and already offers salary sacrifice in other areas, such as healthcare, gym membership, bicycles or childcare vouchers.

2 Work out your strategy

Set out your financial and operational objectives. Is the scheme a means of meeting your duty of care responsibilities? Is it a way to reduce emissions and meet environment targets? Is it about recruitment and retention of staff?

Another key decision is whether salary sacrifice will replace an existing company car scheme or whether the two will run side-by side.

Most organisations opt to offer salary sacrifice in addition to their traditional company car scheme.

3 Be prepared for the work involved

“Don’t underestimate the amount of work required,” advises Phil Redman, fleet manager at IBM.

The company first looked at the idea of salary sacrifice in June 2009 with the launch taking place 18 months later (see case study).

The complexity of the scheme and whether it is replacing the existing car scheme can affect the time taken, but companies should be prepared for implementation taking at least three to six months.

4 Choose the providers

The next decision to make is whether to bring in a flexible benefits provider or to manage the scheme internally.
A funding provider also needs to be appointed.

If you already lease then your existing provider may be an easy option if they offer salary sacrifice or you may want to appoint another provider with more experience.

It’s worth discussing how they will support you during implementation and afterwards (particularly with regards to employee communication), any employment law and taxation issues, as well as looking at how competitive their pricing is.

5 Involve other stakeholders

The fleet department will need support from multiple stakeholders such as finance, HR, procurement, payroll, legal, tax, health and safety and the board.

“A number of people will need to lead on different issues,” explains Mike Waters, director market insight at Arval.

He also advises considering who will resolve issues with the drivers – will it be HR or the fleet team?

Authorisation is another consideration. North Yorkshire County Council had initially planned to have a member of HR sign off vehicle orders, but with the difficult economic climate and the uncertainty surrounding jobs it was decided that orders should be signed off higher up the chain, by the assistant director.

6 Do a staff survey

Assessing staff interest should happen early on.

“See what sort of engagement you get,” Dyer says. “Will you get the uptake you need?” The survey could also establish the types of vehicles staff are most interested in.