Does salary sacrifice hold the key to overcoming skills shortages?

It’s no secret that skills shortages continue to pose challenges for businesses.

The number of job vacancies in the UK – an indicator of demand for talent – remains high, at 988,000. This suggests that plugging skills gaps and hiring for growth is a priority for many employers.

Such fierce competition for skills means HR and recruitment teams are exploring ways to attract the best talent to their organisation while also making sure they retain existing staff.

In our experience at Volkswagen, one way businesses are doing this is through salary sacrifice schemes.

Offering employees affordable access to the latest electric vehicles (EVs) via salary sacrifice is becoming a powerful recruitment tool, helping employers to overcome skills shortages.

Why electric car salary sacrifice schemes are increasingly popular

The demand among employees certainly exists. Recent YouGov research showed that 74% of employees would like the option to drive an EV via salary sacrifice, but only 18% of businesses make this employment benefit available.

This could change rapidly, though. As many as 82% of 398 fleet managers surveyed in May 2023 by the fleet research company, 360 Media Group, said they were very likely or likely to introduce a salary sacrifice scheme in the next 12 months.

So why are salary sacrifice schemes so compelling? And how can they help businesses overcome skills shortages?

Unlocking tax savings for employees

The personal tax saving available to employees is the standout benefit of salary sacrifice.

Provide staff with the opportunity to drive an EV this way and they can unlock significant tax savings while also receiving access to a brand-new zero-emission vehicle.

In layman’s terms, here’s how the tax savings are achieved:

  • The cost of the vehicle lease is deducted from the employee’s salary before tax.
  • This reduces the employee’s income tax and national insurance (NI) contributions.
  • The employee will pay company car tax (benefit-in-kind). But given that this is just 2% for fully electric vehicles (and will remain low until 2027/28 at least), the net tax savings can be substantial.

Talent and attraction aside, there are plenty of other reasons why salary sacrifice is seen as a smart move.

Car benefit schemes: here to stay

Meet duty of care

For HR departments, meeting duty of care obligations is and always will be an important consideration. Offering employees access to brand-new, safe, reliable, fully maintained and insured EVs is one way to help you meet these obligations.

Reduce employers’ NI

The tax saving available to employers is another key factor. Given the payment for the vehicle lease is deducted pre-tax, salary sacrifice reduces employers’ NI liability (up to 13.8%).

Reduce emissions

There are also environmental benefits. Making EVs available via salary sacrifice can also help businesses reduce emissions, contributing to your ESG strategy.

With EVs, direct emissions (Scope 1) can be reduced, when employees drive their personal vehicles for work purposes. Indirect emissions (Scope 3) can also be lowered, when staff commute to and from the office.

At Volkswagen, we’ve seen a marked increase in employers implementing salary sacrifice schemes. This is mirrored across the industry, with the number of vehicles registered via salary sacrifice in the UK leaping by 54.6% between October 2022 and October 2023, according to data published by the BVRLA.

Fleet management: Why lease?

You don’t need to look too far to see the value of these schemes, which are free and simple to set up. This is something your vehicle leasing provider or manufacturer can advise you on.

In a challenging jobs market – when HR and recruitment departments are forced to think outside the box – salary sacrifice could hold the key to overcoming skills shortages within your business in 2024 and beyond.

Owen Shepherd is head of fleet at Volkswagen UK