These crucial 6 hints and tips can help employers and their staff choose the most effective salary sacrifice scheme, according to a leading vehicle fleet expert.
The salary sacrifice – aka ‘Sal Sac’ – concept is a simple one; an employer sets up a scheme whereby an employee can forgo a chunk of their monthly salary in order to get a brand new lease car, or even used lease vehicle.
It can be a huge incentive for employees, particularly those looking to get behind the wheel of a modern electric or plug-in hybrid vehicle, as cost of the lease deal is taken directly from a person’s gross salary before tax.
And employer’s benefit, too, as they can save tax and National Insurance on the sum of money that has been sacrificed, while also helping to retain and reward staff with more employee perks.
A Sal Sac car is considered a ‘Benefit in Kind’ (BIK), according to the HMRC, so an employee will need to pay a tax on it.
But with the Government widely incentivising battery-powered motoring, BIK rates are incredibly low for EVs, at just 2% (fixed until 2024/25), compared with around 30% for a mild-hybrid Ford Puma.
It’s no surprise, then, that Sal Sac has been booming across the UK in 2023.
The latest stats from the British Vehicle Rental and Leasing Association (BVRLA) show Sal Sac is up 54.6%, year-on-year, which equates to more than 55,000 cars enjoyed through such a scheme.
It’s EVs that are leading the way, with 91% of registrations via Sal Sac being pure electric vehicles, as more and more motorists swerve away from traditional petrol or diesel cars.
As Sarah Worthington, Corporate Sales Manager at Select Fleet Solutions – a division of national leasing firm Select Car Leasing – points out, Sal Sac is one of the most affordable ways of driving an EV. The wider industry trends are also reflected in Select Fleet Solutions own data.
Overall, more than 57% of the vehicles ordered through Select Corporate division now have a plug of some sort – being either fully electric or plug-in hybrid – a significant jump from 2022.
Yet not all Sal Sac schemes are made equal. Some might lead to major difficulties for employers further down the line, so it’s worth getting advice from experts.
And here Select Fleet Solutions’ Sarah Worthington reveals what employers – and employees – really need to know to make the most of any set-up.
Setting up your Sal Sac scheme the right way
Sarah: “We’re reaching the point where more and more employees understand what Sal Sac means, and of its benefits. But what happens when an employee reaches out to an employer in order to try and get a Sal Sac scheme set up in the first place? To whom does an employer then turn?
A business will need to partner with a specialist like Select who has access to multiple vehicle funders and can source the vehicles required. That’s where our corporate vehicle department comes in – as you need a provider who can implement a Sal Sac scheme from start to finish, as a full end-to-end solution.
For employees, Sal Sac is about making a person’s salary go further than before. It’s much easier to go to your employer and say, ‘Can I put a lease vehicle through salary sacrifice, and we can both make savings?’, than it is to demand a big pay increase to cover the cost of a new car. And if you’re an employer who is still in the dark when it comes to Sal Sac, we’d suggest you need to start engaging in those conversations swiftly as it’s a hot topic right now.”
Choose an experienced Sal Sac supplier if you’re an employer
“We’re getting a lot of enquiries at the moment from businesses who’ve set up a Sal Sac scheme for their employees, but they’re not happy with it – and that can very much be avoided! What I’d say to an employer is that you need to choose your Sal Sac provider extremely carefully to avoid headaches further down the road.
One of the biggest things we come across is that some Sal Sac providers only offer schemes for fully electric vehicles – nothing else. EVs are, however, more expensive than plug-in hybrid cars, and it means that those Sal Sac schemes might not be inclusive for all employees who’d like to take advantage of it. You also still want to appeal to staff in the 20% tax bracket, who simply can’t afford to deduct £300 or £400 from their salary each month.
Then you have other salary sacrifice providers that only offer certain brands of EVs – which again might exclude huge swathes of the employee pool. Some of the lower priced EVs might not be included, such as your Renault ZOEs or MG4 EVs, and it again limits employees in terms of choice and affordability. And why exclude some of the Chinese-owned, cheaper manufacturers who have been picking up so many industry awards in recent months?
With all that in mind, what we find is that a Sal Sac scheme should also offer plug-in hybrid (PHEV) vehicles, which strike a good balance when it comes to cost.
You pay a higher Benefit in Kind (BIK) with a PHEV than an EV, but the lease rentals are cheaper. Here at Select, we’re flexible in the vehicles that we offer as part of our Sal Sac provision. It’s all EVs, not just select manufacturers, and we’ll also offer plug-in hybrids as well.”
Early termination protection is key
“The other thing that’s important to stress, is that employers need to choose a Sal Sac scheme with the appropriate early termination protection insurance. We’ve seen incidents where companies haven’t been able to make an early termination claim due to the Ts and Cs offered by the Sal Sac provider – and that’s really problematic for businesses.
You might have an employee leave your company, for whatever reason, and now you’re left with their car. It might be resignation, losing a licence to a medical condition, or any number of reasons. And you need to choose a Sal Sac provider that has bullet proof cover for all of those eventualities.”
Stay up to date with your fleet
“Employers running a fleet of Sal Sac vehicles need to keep a close eye on them – and you need a scheme which has all of the tools to do this effectively and efficiently.
Compliance is a big deal, particularly when it comes to so-called ‘grey fleet’ matters, where employees drive their own Sal Sac vehicle for business use. If someone is claiming mileage, a business needs to have the right measures in place to ensure they’re safe on the road. And here at Select we can support businesses on that front for added peace of mind.”
Agile delivery and bulk discounts
“A business needs to have a Sal Sac provider that will work with manufacturers to get bulk discounts in place across their entire fleet policy.
But perhaps even more important than that, you need a provider that’s going to actually deliver the vehicles in good time. We’ve heard from some firms who’ve had Sal Sac vehicles on order for two or three years with their current providers, and have no idea when those cars might actually arrive.
If that was us at Select, we’d be aiming to swap those customers out into alternative vehicles by now, making sure they’re not just sitting on orders. It’s about being agile, and responding to the market conditions in order to navigate a way through any supply difficulties.”
Customer service is king
“When it comes to finding a Sal Sac provider, ensure you’ve got a dedicated account manager and also an administrator as well. It’s what we do at Select, and those specialist individuals are with an employee or employer helping advise them for their entire journey.
It’s also about making sure an employer, or an employee, is supported in making the transition to electric vehicles in general, trying to alleviate any fears and using tools to illustrate the potential savings, as well as explaining the intricacies of charging, or perhaps even installing chargers at work via our trusted partners.”