The countdown to 2030 is well underway. That’s the year the UK government will ban the sale of new petrol and diesel cars – a significant shift that has left many businesses wondering if company car schemes still play an active role in employee benefits.
One option that’s gaining traction is electric vehicle (EV) salary sacrifice schemes. At first glance, these schemes might just seem like a nice employee perk, but dig a little deeper, and there’s a business case for real cost savings, environmental benefits, and a boost to employee engagement – all without a hefty price tag.
So, what’s the catch? What does it really cost a business to run an electric car salary sacrifice scheme? Is it something that really is worth plugging into?
What is an electric car salary sacrifice scheme?
In simple terms, an EV salary sacrifice scheme lets employees give up a portion of their gross salary in exchange for a brand-new electric vehicle, typically on a lease basis. The lease usually includes everything from insurance and servicing, to maintenance, breakdown cover, and even tyres. It’s a one-stop shop for driving electric, and it’s all wrapped up in a neat, tax-friendly package.
In fact, 37% of employers in a Tusker survey on electric cars said they see EV salary sacrifice schemes as a cost-free benefit. Since the deduction is made from gross pay, the employee pays less income tax and National Insurance (NI). And here’s the most appealing part: employers save too, mainly through reduced employer National Insurance contributions on the sacrificed amount.
So, what does it actually cost employers?
In truth, not a whole lot. In fact, many businesses describe these schemes as ‘cost-neutral’ or even ‘cost-saving’. Here’s why:
No direct cash outlay: you’re not buying or leasing cars for employees. The schemes are administered by a service provider, and the cost is taken directly from an employee’s gross salary.
Savings on employer NI: for each employee in the scheme, employers save on National Insurance – typically 13.8% of the sacrificed amount. Multiply that by several employees over several years, and the savings stack up. You can reinvest any savings you receive back into the business.
Pension savings for some: public sector employers can also benefit from reduced pension contributions, which makes the scheme even more attractive.
No benefit-in-kind tax liability for employers: unlike traditional company car schemes, the benefit-in-kind (BIK) tax is paid by the employee, not the business. With EVs currently enjoying a low BIK rate of 3%, the cost to employees is still low.
Cheryl Clements, Head of Business Development at Tusker, explains the appeal: “Salary sacrifice car schemes, particularly those that offer electric vehicles, are increasingly being seen as a cost-effective way to deliver value to both employers and employees.” She adds: “We’re hearing anecdotally that having an electric car helps them to feel more secure with their employer as well.”
A benefit that boosts EVP
Salary sacrifice schemes aren’t just about saving money. They also help businesses boost their employee value proposition (EVP).
Giving employees access to a brand-new electric vehicle (without a large up-front cost) is a powerful way to stand out in a competitive talent market. It helps promote financial wellbeing, reduces commuting stress, and shows you’re serious about sustainability – which appeals to young, environmentally-conscious professionals.
Driving sustainability and reducing emissions
EVs can help reduce your organisation’s Scope 3 emissions – those tricky indirect emissions that come from things like employee commuting. These are often the hardest to measure and reduce, but they can make up a significant chunk of your carbon footprint.
Of course, it’s important to acknowledge that EVs aren’t completely emission-free. Manufacturing and charging them still involves burning fossil fuels, especially if the electricity comes from non-renewable sources. However, the overall emissions are substantially lower than those from traditional petrol or diesel vehicles – particularly when you factor in the long-term efficiency of electric motors and the UK’s increasingly green energy grid.
For companies working toward net-zero goals or looking to enhance their ESG (environmental, social, and governance) credentials, EV salary sacrifice schemes offer a visible, measurable way to reduce environmental impact while engaging employees in the process. It’s a practical step that shows your stakeholders that you’re serious about sustainability.
What should employers be mindful of?
It’s worth bearing in mind that no scheme is totally without challenges. Here are a few things to consider before considering these schemes:
1. National Minimum Wage
You can’t offer salary sacrifice if it takes an employee’s earnings below the National Minimum or Living Wage – so this may exclude some lower-paid staff from participating. So, eligibility checks are a must.
2. Affordability for employees
While the schemes are cost-effective, it’s still a monthly commitment. Some employees might find it a stretch – especially in today’s economic climate. Offering a range of vehicles at different price points can help make the scheme more inclusive.
3. Employee education and support
Don’t assume employees will instantly ‘get’ how the scheme works. Provide clear guidance and personalised examples to help them understand the scheme and the potential benefits.
Not everyone has a driveway or easy access to an EV charger, and while the UK’s charging infrastructure is improving, it’s worth thinking about whether you can support home or workplace charging to make the scheme more practical.
4. Early exit fees
What happens if someone leaves the business or wants out of the scheme early? Some providers offer early termination protection, but it’s important to understand the fine print – and make sure your employees do too.
5. Scheme setup
While it’s not a huge burden, there is some administration involved, particularly in setting up the scheme with employees. Usually, an experienced provider will handle most of the heavy lifting, with your HR and payroll teams on hand to approve an order and set up the reductions.
The bottom line
Electric car salary sacrifice schemes are fast becoming a key player in overall employee engagement strategies. Businesses can save on NI contributions and boost green credentials, all while offering employees an exciting, tax-efficient benefit – without taking a huge dent out of HR’s budget.
With the 2030 ban on new petrol and diesel cars getting closer every day, it could well be the perfect time for businesses to re-think how they support their employees in a sustainable way. If your business hasn’t already explored this option, it might be time to take the wheel and drive change.
If you’re looking for a talented professional to join your team or a new employer to help you develop your career further, contact your nearest Reed office today.
