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Pros & cons of salary sacrifice schemes for cars

Are you considering a Salary Sacrifice scheme as a way to drive a car or as a new company perk for your staff? It’s important to consider the pros and cons before signing yourself, or your business up to a scheme. 

Summary

  • Salary sacrifice schemes for cars are an excellent benefit for employees and employers, but it’s important to understand the pros & cons before committing
  • The main pros include driving a car for less and offering staff an excellent perk to help with hiring and retention
  • Cons may include early termination fees and that it has to be agreed by the employer

Young man driving a Polestar 2 on salary sacrifice

Pros of salary sacrifice schemes for cars

Better car, for a lower cost

On Salary Sacrifice Schemes, employees save huge amounts of money on the cost of a car. The price of the car is taken from your salary, pre-tax – meaning the employee pays less contributions to income tax and National Insurance. Savings of anywhere between 30-60% can be gained by the employee, at no extra cost to the employer.  So employees can bag themselves a great deal on a car, which may not have been affordable if leasing through personal finance methods. 

Excellent benefit for staff

HR and reward departments are always looking for new benefits and perks for their staff. Salary Sacrifice for cars are a great benefit for staff to enjoy, at no extra cost to the business themselves. 

Helps to attract new talent

The job market is highly competitive! Businesses are having to come up with new and innovative ways to attract the best talent. Offering a car on salary sacrifice is a great way to stand out from the crowd and potentially help get that dream employee to join your team.

Better fairness amongst staff

In contrast to company cars, which are usually only offered to senior members of staff, salary sacrifice schemes allow nearly all employees of a business to sign up, should they wish. This helps to alleviate some hierarchal challenges sometimes experienced in larger organisations.

No net cost for the business

Unlike other company perks, salary sacrifice schemes for cars usually have no net cost to the business itself. 

No extra admin

In some cases (like with elmo!) there is no extra admin for the business. We handle everything for the scheme set up, including HMRC payroll. Win-win for the employer.

Great for your ESG or CSR goals

Offering employees a salary sacrifice scheme for cars (particularly if they are all electric) will reflect well on your company, and your ESG and CSR goals. What business’s provide for their staff and the world around them really matters, just as much as their company services. Plus, with the cost of living at an all time high, any way businesses can help their staff get access to cheaper products and services will be beneficial. For more insight, head on over to our blog to read about how salary sacrifice can benefit your CSR goals

Even better if you choose an electric car business provider – your staff will be driving in an emissions free car, helping to reduce the carbon footprint of your workforce.

For more benefits

For more information about the benefits of salary sacrifice schemes, head to our employer and employee guides by clicking on the images below:

Cons of salary sacrifice schemes cars

To be perfectly honest, there aren’t really many ‘cons’ to consider with salary sacrifice schemes. These are just a few things to be aware of before signing up!

Reduced income

The cost of the car is taken from your pre-tax pay, therefore reducing your monthly income / pay check. It’s important before signing up to any salary sacrifice scheme, to make sure you can afford the cost of the car and consider your other monthly outgoings.

Not everyone is eligible

Sadly not everyone can benefit from a salary sacrifice scheme in return for a car. Your salary must not fall below the National Minimum Wage and some schemes do not allow non-permanent staff to sign up.

Early termination fees

With some leasing salary sacrifice schemes, you will be locked in for a pre-agreed period of time (anywhere between 1-5 years). Should you wish to leave the company during that time, or terminate for another reason, you may be liable to pay early termination fees.

However, if you choose to sign up to a subscriptions-based scheme with elmo, there’s just a 60-day minimum term, for peace-of-mind and reduced risk for the employer and employee. 

If you cancel, you may be liable to pay some tax back

HMRC stipulates that for an individual to gain the maximum tax benefits of a salary sacrifice scheme, they need to be signed up for a minimum of 12-months whilst employed. So, if you choose to cancel the scheme before 12-months (without leaving) HMRC might ask you to pay back the tax benefits you experienced. 

The employer has to agree

Salary sacrifice schemes are always facilitated through the employer, so they’ll need to be signed up to a scheme for the employees to benefit.

Some schemes also require the business signing up to be profitable and have been a business for more than two years, so it may not always be possible for a business to sign up. 

On the whole though, because these schemes are so beneficial to staff, with no extra costs for the business, employers usually have no qualms signing up. This is particularly true with our scheme, since we manage all of the admin and HMRC payroll on the employers behalf. 

There’s no option to purchase the car

With leasing and subscriptions based salary sacrifice schemes there is usually no option to purchase the car after the scheme ends. So however much your car has become a part of your family, sadly at some point you’ll have to return it.

Young man getting into his salary sacrifice EV outside office

So, are salary sacrifice car schemes worth it?

Well, we think so! They are a really easy way to get a car for less, without any additional admin headaches for the employers themselves. With elmo, there are additional benefits too, such as shorter minimum terms, plus we manage the whole scheme set up for you.

Polestar 2 parked on road in West London

Calculate your savings

Want to know how much you could save with Salary Sacrifice? Use our calculator

Two people inside a blue EV

Company car or salary sacrifice?

Compare the differences to see which would work best 

Any Questions?

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