Pressing the switch
Despite the advantages of salary sacrifice (both to employer and employee), it is rare for organisations to switch from ECO or cash allowance to salary sacrifice and most pundits view salary sacrifice as a stand-alone product rather than a substitute.
“Don’t even consider switching ECO for salary sacrifice if it’s an efficient and properly functioning ECO,” says Dan Rees, senior manager Deloitte Car Consulting.
“If it’s not, then perhaps company cars would be the better route and salary sacrifice an option – but it should not be a driver for that change. Salary sacrifice is just an internal mechanism for providing a car benefit and on its own, there is no benefit in providing existing company cars via this method over normal provision. If cash allowance and salary sacrifice are run alongside each other, people can take the cash or sacrifice some of it for a company car.”
In addition, the freedom to choose a car to match lifestyle in salary sacrifice could work against company image or practicalities.
“Where there is a business need, you probably wouldn’t provide cars on salary sacrifice, you might want to provide something fit for the job,” says PwC’s Tony Leigh. “If people were carrying around computer equipment or point of sale materials, for example, an employer might want to insist they have an estate car. They wouldn’t get it into an MX5 and you wouldn’t want them too.”
However, David Fernandes disagrees: “A key reason to switch to salary sacrifice is because it promotes better behaviour through drivers’ choosing vehicles with lower emissions than they would on an ECO scheme and potentially cash allowance as well,” he says.
“Another is cost efficiency for employers, as employees are not financially encouraged to drive business miles. There is always healthy scepticism about how many business miles are actually being driven under ECO schemes.
“And finally – although this applies only to structures using novated leases – salary sacrifice schemes will also significantly reduce the financial risks to employers and the administration burden.”
If assessing the appeal of salary sacrifice, there is a number of factors to be reviewed. “What are the employee demographics and what is their view of leasing? How big is the eligible population? What is employee turnover like? How likely is a business restructure or potential redundancies?” says Andrew Kirby of Zenith
“The risk of early terminations need to be factored in. The financial risks to a business can be fully mitigated by the leasing provider,” he says.
And organisations that are considering moving from company cars to salary sacrifice would need to assess what each person’s car is worth and in order to give them enough money to run the same level of vehicle under the new scheme.
Communication is an essential part of introducing a salary sacrifice scheme so that employees fully understand the offer.
Recent research undertaken by Lex Autolease shows that 68% of respondents admitted little knowledge of the schemes.
“Dedicated marketing resource is provided to each customer to create a comprehensive scheme awareness plan to ensure it is communicated regularly to employees,” says Iain Carmichael of Tusker.
“In addition, a salary sacrifice car scheme with a strong communications element, will see cash takers buy in once they fully understand the significant benefits and savings to be made."
Case study: Pricewaterhouse Coopers
“We have salary sacrifice and because it is available to all staff members, there is no such thing as cash allowance, so if you decide not to use part of your salary to have a car, you keep the money or elect to have another benefit. It is quite simple. Most salary sacrifice works in that way, it’s either yes or no, they don’t run alongside each other. You are electing to exchange benefits for remuneration.
“Our scheme is cost neutral to us because the amount the employee pays per month covers all the costs of running the car – the maintenance, insurance, the whole lot, including administration, other than the fuel, for which they get paid back if they do business mileage. But in a company car scheme, the business pays towards that.
“Our salary sacrifice scheme has been in current form since 1999. We use a leasing company that is well versed in salary sacrifice – Leasedrive – to provide vehicles on contract hire in the normal way and they host an intranet site where there is information for employees about what cars they might want, what that’s going to cost and so on. And then the money is deducted direct from their salary. It is partly an internal arrangement and part external.
“You can go into the car park and not have a clue whether a car belongs to a receptionist or a board director. And the whole business of the salesman having not quite as good a car as the area manager, who has less of a car than the regional manager, goes out of the window – the beauty of salary sacrifice is that you can get rid of all this status business. People can have which car they want and they like that because they can choose lifestyle cars as well: where previously they might have been given an Insignia hatchback, now they can have an SUV or MPV.
Case study: Ernst & Young
“We helped a client move to salary sacrifice in the past three months. They had been talking about it for a long time but one of their difficulties was that they are a care provider, so a high proportion of their staff is ladies and a high proportion of those ladies, because of their age profile, is potentially on maternity leave at any one time, more than the norm – the figures are pushing double digits in percentage. They grappled for a long time with the fact that the car is still provided when someone on maternity and how to handle that and discussed it with employment lawyers.
“The scheme has gone live and a couple of months in, they have got some cars on order. It was offered to the entire workforce – about 4,000 staff. The provider has a very user-friendly website. If you know the specific car you want, you can go and find it. Otherwise, you can put in your preferences: I’ve got a budget of £300-£400 a month, I would like four doors, I would prefer petrol/diesel, would rather have a Ford or Vauxhall than a Peugeot or Citroen… And the system filters their options: in that price range, you could have these cars. They can then request a demo, have one for a few days and make a decision.
Interested party - 31/10/2014 15:02
Clear as mud then...even those in the industry seem to disagree on quite when or quite whether salary sacrifice is or isn't worth doing. I have to say that any scheme that could work financially purely because the government is "deprived of some tax" is bound to come under scrutiny at some point and i wouldn't want to have just signed lots of my employees into 3-4 year car deals that then sees the loophole closed on me..and them.