Top reasons to add EV salary sacrifice to your employee benefits
Attracting and retaining staff is a challenge for most businesses.
The UK job market is highly competitive right now. Unemployment rates are 4.2% for November, reports the Office for National Statistics. That means there are relatively few candidates seeking work. The Chartered Institute of Personnel Development (CIPD) also found that 41% of UK firms surveyed have hard-to-fill vacancies.
Jon Boys, Senior Labour Market Economist for the CIPD, says: “High pay growth and falling inflation mean real pay is slowly rising, a boon to workers but a challenge for some employers. Employers who are struggling to keep up should look at the whole employment offer to remain competitive, including non-pay-related benefits that people value.”
With a competitive employee benefits package becoming increasingly critical, electric vehicle (EV) salary sacrifice may be a useful addition. It enables employers to offer cost-effective access to an EV for all employees – not just company car drivers.
EV salary sacrifice defined
Employees can elect to ‘sacrifice’ part of their gross salary for a fully maintained electric vehicle. Payments are taken from the employee’s gross salary, reducing income tax and national insurance contributions. There is a small amount of Benefit in Kind tax to pay, but this is particularly low for EVs, with the rate fixed at 2% until 2025.
Reasons to consider consider salary sacrifice:
1. Demand for EVs is growing
The Society of Motor Traders and Manufacturers reports that more than a quarter of a million new battery electric vehicles have been registered in the UK this year, as at the end of October. However, there are limited incentives for retail customers, which can make the purchase or personal lease cost of an EV prohibitive – especially given the current cost-of-living crisis.
2. It makes EVs accessible
Through salary sacrifice, an employee can lease a new electric car in a deal that is up to 40% cheaper than a personal lease. This is due to tax and national insurance savings because the lease sum is taken from gross salary at source. There are other benefits too:
- No upfront rental costs to employee, no effect on personal credit lines
- Easy to budget - one fixed monthly salary deduction usually covers insurance, tax and routine maintenance
- Lower running costs – the Department for Transport (DoT) says electric cars cost less to run than petrol or diesel cars
3. It is tax efficient for employers, no set up cost
Because the benefit cost is taken from gross salary, employers pay reduced national insurance contributions, with an average saving of 13.8% on the amount sacrificed. There is also no cost to the business to set up the scheme.
4. It supports duty of care requirements
Introducing a salary sacrifice scheme reduces ‘grey fleet’ risk for the business as fewer employees are using their own cars for business purposes. Cars on the scheme are new and fully maintained, which means they may have more up-to-date safety features and better reliability than employees’ current vehicles.
5. It helps the ESG agenda
Businesses of all sizes are facing increased pressure to conduct their business in a sustainable way. A strong and credible environmental, social & governance (ESG) agenda can have a big impact on customers and investors, as well as the ability to attract and keep talent. Enabling all employees, not just company car drivers, to transition to zero-emission cars is a positive step in reducing the carbon footprint of your business.
If an employee leaves the business
There are a number of ways to mitigate this risk. When you set up the scheme with your provider, talk to them about what options they offer, which may include early termination insurance, vehicle reallocation and reserving employee NI savings.
According to the British Vehicle Rental and Leasing Association, salary sacrifice is growing strongly. It can help set your employee benefits programme apart from competitors, saves you and your employees money and demonstrates your environmental commitment.
In partnership with ElectriX
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