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Salary isn’t being sacrificed

By / 10 years ago / Comment / No Comments

 

Salary sacrifice is back in the news again with its devotees saying business is on the up, and the sceptics suggesting it still isn’t as popular as is made out. Would it be unfair to say that, as with so much in fleet – or indeed any other sector – those doing the upselling mostly have a vested interest? It is the way of the world.

Salary sacrifice best suits organisations with a stable employee population, predominantly male, driving low annual mileage, and a business model which suits cars with the lowest CO2 emissions. Those four requirements may give some clues as to why salary sacrifice is not exactly booming in the current climate.

At a time when many businesses need to keep their employee population fluid, so that more people are being employed on short or fixed term contracts, a car scheme which is inflexible and requires a high degree of continuity will suffer.

Funnily enough, the recession hasn’t stopped pregnancy and with more women working full-time, it stands to reason there will be numbers going off on maternity leave. If you have staff who may at some point go on maternity leave, or be off long-term sick, then you still have to leave them with the car, even though they may not be earning a salary from which to sacrifice. That cost then falls back on the company.

Of course you can buy insurance to cover penalties if

a car comes back early, or cover the maternity/illness scenarios – or you can take the risk of a hit on-costs. But it’s a place you don’t need to go if you can offer a conventional company car scheme and write into your policy that reallocations occur before new cars can be ordered. If you are effectively giving the employee ownership of the car, you can’t then allocate it to someone else when you terminate their employment, or they leave.

Employers are squeezing their staff and their assets so that less people cover larger geographic areas. For the employee, the cost of the car will depend partly upon their annual mileage. Many leased company car schemes quote the driver at a benchmark mileage so that everyone is quoted on an equal opportunity basis. The actual mileage will be written for the contract miles required, which may be substantially higher. If the driver is funding that higher mileage lease contract himself, the option to hold financial responsibility for the vehicle becomes less attractive.

There are many more cars available with a low CO2 value now. But to gain the greatest benefit from a salary sacrifice scheme, you need to be choosing cars with low CO2 and a low P11D value; in other words, smaller cars, which may not be considered suitable for lengthy days in the driving seat on business. Another constraint for some companies.

On top of all that, there’s the thorny subject of end-of-lease damage. In a typical company car scheme, the company should, but may not, pass on costs for making good fair damage. The fact that they don’t is seen as a benefit to having a company car by the driver. Once it’s clear to the employee that all the cost would be borne by them, along with any excess mileage, interest wanes a little.

And for an employee keen to maximise his pension arrangements, salary sacrifice may mean figures are worked on notional salary rather than gross making the car scheme become “win some lose some”.

I’m not saying salary sacrifice isn’t a good idea; I’m not saying it doesn’t have its place; but my contention is that in today’s market, conditions aren’t quite right for the product, from the employer’s point of view. And in the current economy, it’s still the employer who calls the tune.

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