Can Car Salary Sacrifice Work for Your Employees?

With businesses currently struggling to attract talent in a post-pandemic landscape where the number of available jobs vastly outweighs the number of skilled candidates, workplace benefits like car salary sacrifice have become an increasingly powerful tool in a recruiter’s arsenal.

But what exactly is a car salary sacrifice scheme? How does it work? And how can car salary sacrifice work for your employees – be they existing or prospective? Read on to find out.

Why do employers offer salary sacrifice?

Salary sacrifice lets employees pay for non-cash benefits out of their gross salary – before government deductions like tax and National Insurance are taken. That means those employees get a great deal because they save money on those deductions. Because of that, salary sacrifice benefits are an attractive prospect for employees, with perks like health insurance and company car allowances proving a big reason to choose a new company or stick around in a current role.

Additionally, employers also get to save money because by paying out lower wages, they can also pay less tax and NIC via PAYE . We’ll go into more detail on all of those benefits below.

Is a salary sacrifice car the same as a company car?

We mentioned company car there but it’s worth noting that there is a difference between a salary sacrifice car and a company car – though the line can get a little blurry.

A company car is usually a vehicle that’s either owned or leased by a company, given to an employee at least in part for business use. A salary sacrifice vehicle is leased directly through a benefits scheme by the employee and paid for out of their gross salary. However, in some cases, instead of giving an employee an owned or leased vehicle, a company will give an employee a company car allowance instead as part of their salary. In these circumstances, this allowance can be used to pay for that vehicle via salary sacrifice, thus giving the employee the same vehicle for less, thanks to the extra benefit of those tax and NI savings.

How car salary sacrifice can benefit your employees

The major advantages of car salary sacrifice for your employees are:

1. Save money on tax and NI

As mentioned above, employees taking advantage of car salary sacrifice can make big savings on the tax and NI breaks that come from paying out of their net, salary (subject to company car tax at low rates).

2. Save time on admin

Another example of how car salary sacrifice can benefit your employees is that some save them time organising things like insurance (although some schemes still ask employees to sort their own). With salary sacrifice, much of the admin is typically built into the agreement, which means your employees just need to use the vehicle, safe in the knowledge that the important paperwork was done at the start of the agreement.

3. Save effort and expense on maintenance

As part of the admin, car salary sacrifice agreements also typically stipulate that maintenance is the responsibility of the benefit provider, rather than the driver. So if a car runs into trouble and needs repair or replacement parts, the employee won’t have to fund the bill. Likewise, MOTs are usually included in the agreement, meaning the employee just needs to take the vehicle to an allotted garage at the pre-arranged time.

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