Car salary sacrifice  

Essentially, a salary sacrifice scheme allows an employee to exchange part of their gross salary for a non-cash benefit: in this case, access to a company car for private lease. 

For employees, the financial appeal is clear, particularly for a higher rate taxpayer, although the level of salary sacrifice savings will vary depending on individual circumstances.

Because the reduction is taken from gross salary, employees save on both income tax and National Insurance (NI). Combined with relatively low Benefit-in-Kind (BIK) rates for EVs, this helps keep the overall cost down compared with petrol or diesel alternatives ^[1] (Please note, we are not tax advisors).

Employees could also benefit from manufacturer and fleet discounts, all-inclusive fixed-cost motoring such as insurance and warranties, as well as lifestyle protections. Such support around budgeting certainty may be a key factor in employees’ financial wellbeing.

Its simplicity is also a big draw. The provider handles all the paperwork, the employee pays a single amount through their salary, and the scheme is usually an all-inclusive package covering road tax, fully comprehensive motor insurance, breakdown cover and servicing. As David Larkins, Senior Benefits Strategy Consultant, Mercer Marsh Benefits (MMB) points out: “You’re not just getting the car, you’re getting a comprehensive, all-inclusive package of essential services that go with it, without the need for a personal loan or credit agreement.”

Some providers include free home charging, while some employers are installing workplace chargers. This support from providers and employers may not only improve the employee experience but may also help address common concerns around switching to an electric or hybrid car. 

From an employer perspective, the savings begin as soon as employees enroll. Reducing gross salary can significantly reduce the organisation’s NI contributions, which can add up quickly across a larger workforce.

It can also help with retaining employees who are already part-way through a lease. As Drini Zerka, Benefits Strategy Consulting Leader at MMB, says: “Once employees start to see those savings in their take-home pay, it becomes part of their decision-making if considering another role.”

As the evolving EV market increases vehicle choice and brings down entry costs, pre-loved models and longer lease terms are making schemes accessible to a wider range of employees.^[2]

Meanwhile, lower EV charging tariffs also help reduce everyday running costs compared with petrol.^[3]

That said, uptake is not uniform. Based on Mercer Marsh Benefits/Darwin internal data, higher average salaries can lead to stronger participation, while organisations with a large proportion of employees near minimum wage may see lower take-up. In those cases, strong engagement becomes crucial.

“If communications and launch are done well, employers should be aiming for at least 10% uptake,” Larkins notes.

While some providers specialise in EVs and buy vehicles in bulk, others offer a wider range including hybrid cars and petrol models. This often comes down to company strategy, for example to promote sustainability or provide a broader choice.

Meanwhile, there are variations around onboarding, payroll integration and customer service, while risk factors such as provider stability – both governance and financial – matter too. “They can vary in who is liable and when, how processes are handled, and what happens in different scenarios,” Zerka says.

In addition, early termination fees can vary. In most cases, the liability sits with the employee, but if that cost cannot be recovered, the employer may carry the risk.

Because salary sacrifice cannot reduce pay to below the national minimum wage, employers need to understand who in their workforce can realistically benefit.

The broader point, Larkins adds, is that it needs to fit with the firm’s wider benefits strategy, alongside pensions or savings. “If some lower-paid employees can’t access it, it can create a disconnect,” he says, “However, the NI savings generated can be reinvested elsewhere, so there is a balance to consider.”

“Do your research” is therefore the key message for employers – undertake robust due diligence and market assessment, understand the market and engage with experts, before making a commitment.

With all the elements in place, an EV salary sacrifice offering can become a well-used part of a benefits scheme. It offers a straightforward way for employees to access an electric car at a lower cost, while enabling employers to benefit from a scheme that supports wider company priorities.

^{[1] https://www.santanderconsumer.co.uk/ev-hub-insights/company-car-tax-on-electric-cars-benefit-in-kind-bik-explained/}

^{[2] https://tuskercars.com/knowledge-hub/why-a-pre-loved-salary-sacrifice-car-might-be-right-for-you/}

^{[3] https://www.eonnext.com/electric-vehicles/guides/costs-and-benefits-of-electric-cars/running-costs}