Salary sacrifice: Five steps to make your scheme a success

Salary sacrifice (sal/sac) is increasing in popularity among companies as a way of giving employees a cost-effective way of accessing a low emissions car. But a high uptake is not always guaranteed. We look at how to make a scheme work for both businesses and staff...

1 Make sure you/your employees understand how it works

Sal/sac works in a different way to traditional car funding – both for companies and retail customers.

The schemes enable businesses to provide employees with access to new vehicles by ‘sacrificing’ some of their pre-tax salary each month over a fixed term.

As well as leasing the vehicle, the fixed sum usually also includes other running costs such as insurance, vehicle excise duty (VED) and maintenance.

Participants do have to pay benefit-in-kind (BIK) tax on their vehicle, but the current tax regime makes sal/sac a cost-effective way to get behind the wheel of a fully-electric or ultra-low emission car.

David Carey, product management and development at Alphabet (GB) says:

“By selecting a low- or zero-emission car employees can pay comparatively little tax – effectively making their money go further, particularly when compared with a car loan or hire purchase made after tax.

“So, while an EV may initially appear to be more expensive, lower running costs coupled with significant reductions in BIK and the income tax and national insurance contributions-free treatment of the ‘sacrificed’ amount can result in long-term savings for participating employees.” 

From the moment a scheme is launched, it is essential to ensure total clarity surrounding topics such as early termination fees, maternity leave and what happens when an employee leaves the company.

Organisations can take steps to minimise the impact and costs of any of these events.

“This can be via policy, by paying for the risks from the scheme or insuring the risks through a number of different products in the market such as termination insurance or payment support products,” says Christopher Caddick, head of business development at JCT600 Vehicle Leasing Solutions (VLS).

Organisations should also make employees aware of how sal/sac can be affected by potential tax changes. For example, as BIK rates rise, so will their monthly company car tax bill.

This became apparent after Chancellor of the Exchequer Jeremy Hunt provided BIK rates up to April 2028 in his Autumn 2022 Statement – with values for battery electric vehicles (BEVs) increasing to 5% over this time.  

Carey adds: “Although the Autumn Statement set out an incremental increase to BIK tax rates of 1% per year from 2025, the average electric vehicle (EV) driver on a £35,000 list price at the 20% tax rate will only be paying an extra £6 a month from April 2025.  

“This provides much needed certainty post-2025 and means employees can still benefit from favourable tax rates for EVs through salary sacrifice schemes when compared with petrol or diesel vehicles.”

2 Consider how to integrate the scheme into existing operations

Sal/sac schemes must, invariably, be integrated into existing operations in the most appropriate way possible, but what is the best way to achieve this? 

For example, do you want the scheme to be linked to an existing portal? Or would you prefer colleagues to access it via a standalone website where everything – from educational support documents to ordering and ongoing management – is available?  

“If you are looking to launch a salary sacrifice scheme alongside any other car schemes in your business – be that traditional company car, cash allowances or employee car ownership schemes – then it is worth having all these schemes available in one portal where employees can weigh up the benefits and costs of each scheme, hopefully alongside one another,” says JCT600’s Caddick.

“The ultimate aim is to help colleagues make informed choices that are right for them.  

“These portals should also deliver the full employee journey from scheme details to access documents, ordering and managing vehicles.  Managing several schemes across various portals can become confusing and more complex than it needs to be for both a business and its employees.”

3 Be clear on why you’re introducing sal/sac

Sal/sac schemes have traditionally been perceived as a staff benefit to allow employees who are not eligible for a company car to access a new vehicle. But an increasing number of companies are using them to replace their traditional company car scheme, such as Willmott Dixon (see case study, below).

So what must companies be mindful of? Paul Gilshan, chief executive of Tusker, says: 

“It is worth viewing a salary sacrifice scheme as an inclusive, rather than exclusive, benefit from the outset, which may necessitate re-looking at pre-existing company policies around eligibility."

Gilshan adds that an EV-focused sal/sac benefits scheme can have a huge impact on lowering overall emissions for a business. Tusker has found that companies frequently look to market the schemes on the both the strength of its environmental credentials as well as the economic benefits to employees. 

4 Build a communications plan

Ensuring newly-launched sal/sac schemes are explained to employees clearly is essential for both their immediate and long-term success.

Any communications plan should be based around the best channels available within your organisation. Does it have an intranet or use regular email newsletters? Would employees prefer videos to browse in their own time, or would webinars or live, in-person seminars be more suitable?

“A communications plan should be tailored to you and your employee population,” says Caddick.

“What works well for one business will not necessarily work well for another.

“Build a communications plan based on the tools you have available, combined with the knowledge of how best to communicate with employees.”

Tusker has witnessed a huge take-up of webinars following the Covid-19 pandemic, which allows large numbers of drivers to learn more about the scheme in a short space of time. It also produces a number of videos which are able to be hosted on intranet sites, or via links to its YouTube channel which help employers explain the scheme to employees.

“Equally, in-person launch events, often featuring a selection of available vehicles and product experts, can be very popular, and often result in a high rate of employee engagement,” he adds.

5 Choose the right sal/sac provider

Selecting the right partner who is able to tailor your sal/sac scheme to meet your objectives and requirements pays dividends.

For example, do they have access to the vehicles you require? Are they fully familiar with all the back-office functions that will be necessary? Can they support your growing requirements in full?

For peace of mind, it is important to ensure your provider has a proven history of delivering sal/sac schemes across businesses of all sizes.

“Implementing a salary sacrifice scheme often involves working with multiple internal stakeholders inside a company as well as alongside any other existing benefits suppliers, so robust processes and experience of these complex transactions are crucial to a smooth launch,” says Tusker’s Gilshan.

“Equally, it is important to ensure the scheme is as risk-free as possible for the employer, as salary sacrifice schemes can be opened up to far more employees than a traditional company car scheme.”

Selecting a provider which has established relationships with car manufacturers and suppliers can be immensely beneficial.

JCT600’s Caddick adds: “There are various solutions available on the market today, but, ultimately, you’re not procuring a supplier’s product, but a partner to your new scheme for your employees.

“Look for a provider with knowledge and experience in delivering employee-focused car schemes, clear roles and responsibilities and a focus on the overall solution. 

“Ensure they have the latest technology to deliver a seamless employee journey. 

“But, above all, look for a team which will support your employees through the scheme, while delivering service in line with values aligned to your business.”

Case study: Willmott Dixon

Construction and property services business Willmott Dixon switched its car funding policy from a standard three-year operating lease to salary sacrifice at the start of 2021.

Built and launched by fleet management company CLM in consultation with Willmott Dixon’s sustainable transport team, the company is using its sal/sac scheme to ensure rapid carbon emission reductions thanks to the significant tax advantages for electric vehicles (EVs).  

More than 600 drivers have already opted into the scheme, with half of those previously having taken the cash allowance.  

“I believe the scheme’s popularity will continue increasing as replacement cycles on the pre-existing company car scheme come round,” says chief financial officer Graham Dundas (pictured), who also chairs the sustainable transport team.

“We already have 150 more drivers in the salary sacrifice scheme than opted for the legacy company car scheme before its launch.

“It’s evident that colleagues really value the option to access low emission vehicles, preferably EVs, in a tax-efficient way.”  

The average CO2 emissions of the cars available through the scheme is 15g/km, and it is currently proving most popular among employees in higher tax brackets.

Dundas says the key to successfully implementing a salary sacrifice scheme is ensuring your organisation and sal/sac partner have the most comprehensive understanding of drivers’ requirements and the journeys they undertake. It is equally important schemes are explained clearly to all colleagues from the outset to secure fully-informed decisions.  

“We’ve always recognised that take-home pay and the kind of car you drive are emotive topics – and there were always likely to be a lot of questions,” says Dundas.  

“Consequently, it’s important that colleagues clearly understand what a sal/sac scheme means for them from the moment it’s launched.”   

Willmott Dixon worked with CLM to initially carry out virtual presentations “to each of our regional offices which were exceptionally well received”, adds Dundas.

“We’ve also listened to all the feedback – and intend to continue doing so.  

“So far, we’ve adjusted our mileage reimbursement rates for EVs as HMRC-approved rates were slow to respond to rising costs, and we intend to become more flexible with choice lists for more junior people to ensure their requirements are catered for.  

“I believe you do need to monitor your sal/sac scheme regularly once it’s operational to ensure it continues to meet your organisation’s and drivers’ requirements – but this is a small price to pay for the benefits that accrue.”