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Why electric car salary sacrifice schemes are increasingly popular

It is worth taking time to get your salary sacrifice scheme just right

The need for businesses to reduce their carbon footprint and people’s desire to go electric are converging in the shape of the Electric Car Salary Sacrifice Scheme (ECSSS).

Salary sacrifice leasing schemes, where an employer leases a fleet of cars from a provider and loans them to employees in exchange for some of their salary, have been growing in popularity.

According to the British Vehicle Rental and Leasing Association, salary sacrifice leasing schemes have seen "vertiginous growth" of 41% (Q1 2023 vs Q1 2022).

They are also driving a shift away from petrol and diesel vehicles: 91% of salary sacrifice cars in Q1 2023 were fully electric.

Our own research last year found that more than two thirds (68%) of SMEs were considering offering ECSSS to employees, with more than half (56%) planning to implement it in the next 12 months.

HR's pocket guide to carbon pricing

According to the Society of Motor Manufacturers and Traders, new battery electric vehicle (BEV) registrations have seen a 38% rise year-on-year, compared with an increase of 19.8% across all fuel types.

The confirmation of benefit in kind tax rates for BEVs until 2028 plays a major role in supporting the switch to electric.

However, BEVs are more expensive than traditional vehicles so providing employees with affordable access, with potential tax benefits for both employer and employee, via ECSSS is a win-win for both.

People’s desire to reduce emissions is matched by the need for most businesses to reduce their own carbon footprint. Almost half of employers view an ECSSS as part of their company’s responsibility to reduce its carbon footprint.

An ECSSS also brings other advantages, it can reduce national insurance contributions.

As salary sacrifice is a voluntary agreement, no national insurance contributions are required on the amount of salary sacrificed, creating potentially meaningful savings.

It can also aid cashflow. An ECSSS is usually paid before any taxes are deducted, which can result in businesses having more working capital to deploy.

It is a valuable employee benefit and 45% of companies believe that offering the ECSSS will have a positive effect on retaining and recruiting talent.

How can HR introduce more environmentally friendly benefits?

A third of driving workers say they would view their employer more positively if they offered an EV ECSSS and 17% would even consider switching jobs if a similar company offered it.

Importantly, an ECSSS is increasingly easy to set up. There are many providers and consultancies with accessible tools for HR teams, making the process quick and efficient.

There are several factors employers should be mindful of when investigating whether to establish an ECSSS.

The first step is to pick the right fleet partner that can provide a corporate with a one-stop shop solution that fits with their business’ requirements.

Employers should also consider setup costs, although these should be amortised.

Another consideration is fleet insurance. It is the employers’ obligation to provide insurance for their fleet, as the lease agreement is with the employer not the individual. Insurance will be provided as part of the salary sacrifice scheme, and employees don’t have to worry about having to sort out cover.

HR teams should consider getting gold-plated fleet insurance, knowing that risks are mitigated will help provide peace of mind for the employer and an additional incentive for employees, as much of the car maintenance hassle is taken away.

It’s not difficult to see why more employers are offering salary sacrifice car schemes.

It’s green, it’s great for employees and employers. However, it is worth taking time to get your ECSSS just right.

By Nicola Richmond, head of Churchill Expert Flexible Fleet Partnerships