Why salary sacrifice represents the way forward for Willmott Dixon

Willmott Dixon CFO explains why the business decided to change its car funding policy.

Salary sacrifice (sal/sac) has enjoyed a renaissance over the past year, as a growing number of employers tapped into the low benefit-in-kind (BIK) tax rates to launch schemes as part of flexible benefits packages.

Some have also started to consider sal/sac as a viable alternative to a traditional company car scheme, helping to speed up a move to ultra-low emission vehicles (ULEVs) or to unlock the national insurance contributions (NIC) savings.

Construction and property services business Willmott Dixon switched its car funding policy from a standard three-year operating lease to a sal/sac scheme at the start of the year.

The scheme was built and launched during the heights of the Covid pandemic by fleet management company CLM in consultation with Willmott Dixon’s sustainable transport team, chaired by chief financial officer Graham Dundas.

Dundas has been involved with the car fleet since joining the business as a management trainee more than 20 years ago. His first input was to be part of the project team which migrated the outsourcing of its fleet
management provision to CLM; it’s been the company’s principal partner ever since.

CLM oversees the day-to-day management of the car fleet and driver engagement with the two companies working together to agree the fleet policy and car choice list.

“We consider what we want to achieve with our fleet strategy and consult with CLM who implement and run it for us,” Dundas says.

“We don’t employ anyone who spends a material part of their time worrying about company cars and fleet management. CLM is the specialist and this allows us to focus on the day job"

Graham Dundas, Willmott Dixon CFO

“It’s been a strong relationship for more than two decades.”

Historically, Willmott Dixon ran a traditional lease scheme utilising a panel of funders for competitive pricing through CLM.

The first question asked of qualifying employees was: cash or car? Everyone got a straight choice with qualification criterion  dependent on the need to travel in their individual roles.

Around 450 staff opted for the car; another 1,050 chose cash and slid into the grey fleet.

In September, the Willmott Dixon team started working with CLM on a project to design and implement a salary sacrifice replacement for the lease car scheme.

The primary driver was a new Willmott Dixon sustainability strategy called Now or Never which introduced a series of ambitious targets, including becoming net zero by 2030 without offsetting (the company has been carbon-neutral since 2012 with offsetting). This involves moving to a 100% electric fleet.

The sustainable transport group focuses on ways to drive down emissions and incentivise staff to choose environmentally-friendly cars.

Learnings came from the pandemic. The successful deployment of Microsoft Teams to replace face-to-face meetings previously held nationwide convinced the company to aim for a 60% mileage reduction against pre-Covid levels. Supporting this target is the introduction of a home working allowance and agile working as part of a suite of complementary benefits products.

Expanding the flexible benefits

Sal/sac presented the ultimate shortcut to rapid carbon emission reductions thanks to the appeal of the significant tax advantages for electric vehicles (EVs). By extending the scheme to all 2,200 employees, not just job-need drivers, it also offered a way to expand the flexible benefits package.

“In introducing salary sacrifice, we are seeing the number of people coming back into the scheme increasing quickly – more than 175 have opted in and placed orders since January, many of which are additional to the 450 car drivers,” Dundas says.

“A lot are coming from the grey fleet where average emissions are much higher than the company fleet – around 134g/km versus 106g/km. Average emissions on the vehicles being selected under the new scheme are just 15g/km.”

Crucial to cementing the decision to change the entire car policy to salary sacrifice was the retention of the panel of funders: Willmott Dixon does not tie itself to a sole partner.

“Having a panel of funders gives us great benefits on competitive pricing and it has delivered significant cost savings over the years, around £150,000 per annum on the current fleet.”

Graham Dundas, Willmott Dixon CFO 

“Our contract hire went to our nominated panel of five providers and we have embedded that into the salary sacrifice approach, so our drivers get the benefit of our buying power and the benefit of competition through the panel.”

The service is delivered via Knowles Fleet’s web platform, which facilitates multiple quotes for multiple cars for cost comparison, all based on a three-year replacement cycle.

The platform includes calculators to inform staff about the implications of switching to a sal/sac car, including the impact on net pay. Additional calculators and FAQ documents help people consider additional savings such as on fuel and insurance. The case can look particularly compelling to anyone who has previously taken cash.

The choice list is capped at 125g/km, the same level as the outgoing lease car scheme, to ensure people were instantly engaged, went on the website and started looking at quotes.

In truth, the cap is largely redundant: so far, just two orders haven’t been for a full electric car or plug-in hybrid. Appetites were whetted by presentations about the types of cars staff could get for their money and how little it affected their take-home pay.

“Our thinking was we didn’t need an aggressive cap to achieve the emissions reduction – the BIK tax, when combined with internal communications and awareness workshops we ran, did the job for us,” says Dundas. “By the end of the year, we plan to reduce the choice to PHEV/EV only.”

Charging infrastructure

Willmott Dixon has committed to support employee take-up of electric cars by installing a charging infrastructure at all places of work – around 130 live projects with contracts averaging 12-15 months. They are now a natural part of the temporary electric works that are undertaken during the site set-up.

A working group with representation from operations, procurement and finance considers the optimum charging options based on the length of the project and how many people are deployed. The biggest projects have the most chargers at the highest power outputs; minimum spec is 7kW with all chargers supplied by Rolec.

A guidance note issued to site teams is based on one charge point with double sockets for every five vehicles as a minimum. It’s the responsibility of the site teams to ensure everyone gets their share of electric, although with vehicles, typically, having a range of 150 miles-plus, the workplace solution is intended to be more of a top-up rather than the only source.

Workplace charging is not free. Drivers pay for the electricity and are reimbursed on a mileage claim basis. For plug-in hybrids, reimbursement is at the 4p per mile electric rate for the first 25 miles before switching to the advisory fuel rate.

This will be reviewed over time.

“With this policy, we are trying to get people to recognise that we expect them to maximise the electric use of plug-in hybrids wherever possible,” says Dundas.

“The reason we don’t offer free charging is to keep things simple from a tax perspective. It’s hard to track the mileage you’ve provided through the electricity and the mileage that people have done at their own expense that you are reimbursing so everyone is reimbursed on the mileage they have done.”

He adds: “It also means that we can be more flexible in making our charge points available to customers, supply chain partners and other visitors.”

Leaving charge points behind

Willmott Dixon is working with its clients with the intention of the charge points and groundworks to be part of the infrastructure left behind where possible. It is increasingly becoming part of the design.

Workplace charging opens the EV door to those who are unable to install a change point at their home. Nevertheless, while a home charger is not mandated, there is an approval process to ensure the car is an appropriate choice for the employee; if they don’t have a home charger, they must have a viable plan to charge the vehicle.

Additional safeguards include an afford-ability cap: staff can sacrifice up to 25% of their salary on a vehicle to prevent them over-committing themselves financially.

The company also operates a green bonus scheme, recently refined, to incentivise people to choose a ULEV.

The cash incentive, based on a sliding scale up to £1,500 for a full-electric car, is designed to more than fund the cost of installing a home charging unit.

“We put this framework in place to help people to make these choices,” Dundas says.

While the primary objective for introducing sal/sac is to reduce carbon emissions, there are financial benefits, too, in terms of lower employers’ NICs and the fuel savings from the lower advisory rate. In the first year, those savings will effectively fund the cost of implementing the scheme.

But there are also risks. Willmott Dixon has opted not to routinely pass on termination charges to anyone leaving the business. Instead, it will ringfence some of the savings for an early termination pool to offset the risk – albeit this is a “calculated risk”, says Dundas, as the company enjoys high levels of staff retention.

“We decided not to fully price this into the salary sacrifice contract because we wanted to make it as competitive as possible to bring people into the scheme – especially with the current economic climate,” he explains.

“We also recognised that for those staff historically with a leased company car, that is a fully expensed car where all the risk borne was by the company.”

Graham Dundas, Willmott Dixon CFO

Under the arrangement, some risk still sits with the employee, in terms of non-routine maintenance and insurance excess; everything else is included.

Carrot rather than stick is the Willmott Dixon way. It will continue to offer cash, but utilise the green bonus scheme and mileage reimbursement rates to incentivise its grey fleet drivers to move to sal/sac.

One example is its use of advisory fuel rates. Many years ago, it stopped paying the full rate for 2.0-litre-plus cars, capping claims at the mid-engine range.

And, while it does not restrict the choice of car someone can select with their motor expenditure allowance, it has just introduced a CO2 cap upon which it will pay mileage. The threshold of 190g/km is targeted at eliminating the worst 25% of polluting vehicles but will be “significantly reduced” year-on-year to nudge staff into making the right choice.

“Our approach means that when people make their next car choice, they are mindful it comes with an impact. But, if they step it down, they might get a green bonus or a favourable mileage rate,” says Dundas.

“We will continue to make different interventions, but focus, where we can, on the carrot, not the stick.”

Graham Dundas, Willmott Dixon CFO

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Dundas on… sal/sac challenges

The biggest challenge Willmott Dixon faced in designing the salary sacrifice scheme was the degree of change it meant for drivers who had been in a fully funded, risk-free company car for many years.

“In implementing the scheme, we were keen to recognise this in the roadshows, which we ran regionally for all of our people. We made sure we addressed people’s questions and concerns and gave them the tools and the case studies to properly assess the change,” says Graham Dundas.

“Employee engagement is important if you are introducing a sal/sac scheme. You need to invest in the communications and give everyone a chance to raise concerns – this is invaluable.”

Graham Dundas, Willmott Dixon CFO

The other notable challenge was the work to ensure the company would continue to benefit from the panel approach to funding.

“It took us some time to establish with Knowles the website with the feeds from the leasing companies so, when our drivers were getting quotes, they were getting that instant benefit of multiple party quotes,” Dundas says. “That made implementation harder compared with going to a standard sal/sac provider.”

He adds: “It was the first scheme to deliver a panel approach for salary sacrifice with CLM. And we were also able to add one or two funders thanks to the automated feed through the Knowles platform.”

The panel is reviewed quarterly with CLM. Those unable to compete on price or terms are periodically replaced by others offering a better proposition.