Fleet News

Poor understanding hampers salary sacrifice

I am significantly involved in all areas of salary sacrifice, not just in regard to cars, and I see that there is still substantial interest from employers looking to generate a National Insurance saving by its use.

However, with the rate of National Insurance increasing, it is very relevant for employers to look at this area again.

We are finding significant interest in the issue of pension salary sacrifice. But in my experience, the take-up by employees in other areas is low.

For instance, with the cycle-to-work scheme it is not uncommon to find the take-up to be in single figures.

As for salary sacrifice on cars, this is an attractive proposition, but again, in my experience, while many employers are considering introducing the arrangement, many find it difficult to understand and the employee take-up is relatively low.

However, the use of salary sacrifice and cars can be a useful way of reducing an employer’s risk under the duty-of-care legislation.

It should also be remembered that salary sacrifice and cars is not a new concept and many employers permit their employees who are eligible for a company car to upgrade and meet the additional costs by use of a salary sacrifice arrangement.

It is important that employers who adopt this approach calculate it by referencing the wholelife costs model and not simply any additional monthly leasing charge when they are considering the additional cost.

In regard to permitting employees to take a salary sacrifice and lease a car, my concern is that employers understand how this works and the risks involved.

We have seen a significant amount of confusion by employers over their risks with items like early termination, long-term sick leave and end-of-term charges.

It is also essential that employers understand what needs to be done to make the salary sacr-ifice work for tax, employment law and pension purposes.

Therefore, it is essential that employers take specialist advice in this area and don’t rely simply on what their leasing provider offers.

Author: Alastair Kendrick - Mazars LLP

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  • Brianrudkin01 - 22/03/2011 07:49

    I couldn't agree more Alistair. Whilst salary sacrifice (cars or otherwise) is often not appropriate or recommended for some employers, it nevertheless is still a very effective method for many in enhancing staff reward and reducing payroll costs. However, in line with your own comments, in my experience the two biggest causes of confusion/errors/low take-up are: 1) Over reliance on providers to cover off the tricky legal and tax issues. With the best will in the world, these providers have a product to sell and their expertise is not usually in employment and tax law. 2) Poor communication when rolling out the salary sacrifice scheme. Employers often do not place enough importance on this side of things with the result that employees do not understand the full implications and therefore decide not to participate for fear of the unknown. Brian Rudkin Optimum PAYE www.optimumpaye.co.uk

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