Salary sacrifice has gained significant attention over the years, with more businesses adopting it more than ever before, and for good reason. It is an excellent benefit that companies offer to their employees, providing valuable advantages for both parties.
Surveys reveal that one in two SMEs identify financial challenges as their biggest obstacle to offering benefits packages. This insight comes from a report by Howden Employee Benefits in partnership with YouGov. With rising national insurance contributions and the ongoing cost-of-living crisis, salary sacrifice emerges as a valuable solution. It helps reduce NI contributions for employers, offering cost savings of 2% to 12%, depending on the amount an employee sacrifices.
Not only is salary sacrifice a valuable benefit for SME for their employees, but it also helps reduce your business’s indirect emissions, particularly from employee transportation as its incentive to switch to a vehicle that emits zero emissions.
Transportation is one of the largest contributors to emissions, and by encouraging employees to drive zero-emission vehicles through salary sacrifice schemes, businesses make significant strides toward sustainability goals.
What is Salary Sacrifice?
If you are not familiar with salary sacrifice, it is an arrangement where an employee agrees to give up a portion of their gross salary in exchange for a product or service. This allows employees to save on national insurance and income tax. The benefits do not stop there – employers also save on National Insurance contributions. It is a practical solution that benefits both parties.
Salary sacrifice is becoming an increasingly popular benefit, especially as more employees express interest in benefits like company cars. As employees place more value on the benefits their companies offer, salary sacrifice presents a great opportunity for businesses to meet those needs. It is a win for employees who gain access to valuable benefits, and for employers who offer these benefits in a cost-effective way.
Employees Benefits:
- With a reduced gross salary, employees enjoy cost savings on tax and National Insurance.
- Drive a brand-new electric vehicle for an affordable fixed monthly cost.
- No credit checks or initial payment required.
- Maintenance, road-side assistance, insurance, and early termination included in the fixed monthly cost.
Employers Benefits:
- Reduce National Insurance contributions, leading to significant cost savings.
- Attract and retain top talent in a competitive job market, with a desirable benefits package.
- Support sustainability efforts by helping to reduce company emissions with electric vehicle options.
Benefit-in-Kind (BIK) Tax
With salary sacrifice, employees pay Benefit-in-Kind (BIK) tax on their vehicle, but the BIK rate is significantly lower for electric vehicles, making it a cost-effective option. The rate is based on the vehicle’s emissions—zero-emission, for example, have a BIK rate of just 2% for the 2025/2026 tax year. On the other hand, vehicles with emissions over 170g/km face a much higher BIK rate of 37%. This difference creates a strong financial incentive for both employers and employees to choose electric vehicles through salary sacrifice, taking advantage of lower BIK rates.
The Cost-Effectiveness of Salary Sacrifice
As mentioned earlier in the article, many SMEs face challenges when it comes to offering benefits, primarily due to the associated costs. However, salary sacrifice presents a great benefit with minimal cost. Most electric vehicle salary sacrifice schemes differ in terms of pricing, with some charging a small administration fee. Many providers offer their own salary sacrifice portals with low administration fees, making the process even more cost-effective.
The overall cost is typically low, which is one of the key reasons salary sacrifice schemes have become so popular. These portals allow employers to manage the process easily, enabling employees to view available options, select vehicles based on their preferences and emissions, and streamline approvals—all in a simple and efficient system.
Example Payslip for Salary Sacrifice
Below is an example payslip with and without a salary sacrificed leased car. This is for reference only & is designed to help you understand the figures, ultimately, helping you to decide whether or not to lease a car via a salary sacrifice.
Sustainability and Public Sector Contracts
As the UK advances its Net Zero by 2050 plan, businesses face increasing pressure to cut carbon emissions across operations and supply chains. For many service sectors, supply chain emissions, or "embodied carbon," are often the most significant, making it essential for businesses to address these indirect impacts to remain competitive.
For those targeting public sector contracts, a credible net-zero plan is now vital. Policies like the Procurement Policy Note (PPN) require suppliers to disclose their carbon footprint across all scopes—direct, energy-related, and supply chain emissions. Taking proactive steps to lower emissions not only aligns with these requirements but enhances a business's competitive edge as public sector buyers increasingly favour sustainable suppliers.
Salary sacrifice schemes for electric vehicles (EVs) provide a practical and impactful way to reduce emissions, particularly those tied to employee transportation. While they may not solve every aspect of a company’s carbon footprint, they represent a great step in the right direction. Encouraging EV adoption is a great place to start, helping businesses address one of their emission sources while also supporting broader sustainability goals.
Whether you're a large corporation or a small business, initiatives like EV salary sacrifice help lay the groundwork for meaningful progress toward net-zero targets. By integrating these solutions into your sustainability strategy, businesses can meet their environmental commitments, enhance eligibility for public tenders, and contribute to a greener future.
Overcoming Concerns with Electric Vehicles
While there are some challenges when it comes to adopting EV salary sacrifice schemes, many employees are eager to make the transition to electric vehicles. For those who are hesitant, concerns often stem from issues like vehicle range and charging accessibility. However, the reality is that electric vehicles are the future, whether we like it or not, and they are quickly becoming the standard.
Many modern electric vehicles now offer ranges of 300-400 miles per charge, with some models exceeding 400 miles. This makes range anxiety much less of a concern. As for charging, one way to alleviate employees' worries is by providing charging points at the workplace, which can be a great incentive. The government is currently offering grants for installing workplace charging points. (https://www.find-government-grants.service.gov.uk/grants/workplace-charging-scheme-2)
Moreover, the UK’s public charging infrastructure is expanding rapidly. As of December 2024, there are 73,699 electric vehicle charging points across 37,011 locations. This growth helps ease concerns around charging. Additionally, electric vehicles, especially brand-new models, significantly reduce maintenance and running costs compared to traditional vehicles, making them a cost-effective choice for businesses and employees alike.
Get in Touch
If you would like to learn more about how salary sacrifice can benefit you and your business, or if you would like to hear more from our team, we are always happy to have a conversation. Call us at 0800 032 1433 or email us at info@fleetsauce.co.uk.
