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Salary sacrifice: Secrets of success

By / 6 years ago / Features / No Comments

The principle of salary sacrifice for cars is a simple one – enabling an employee to sacrifice part of their gross salary in return for a totally managed company vehicle at a very taxefficient price.

Yet for some fleets, setting up such a scheme and helping to ensure its success can seem like a daunting prospect. And with most vehicle leasing and fleet management service providers now offering some form of car salary sacrifice scheme, it is important for fleets exploring salary sacrifice to make sure they are asking the right questions of the right people – this will go a long way towards ensuring your chosen supplier is able to design, implement and promote a scheme that is the best fit for your business.

 

How much in-house expertise is required to administer a salary sacrifice scheme?

This should be a key consideration from the outset and smaller fleets could see this as a stumbling block, but actually the salary sacrifice experts say that little expertise is needed.

Tusker’s chief commercial officer, Iain Carmichael, says: ‘If you chose the right provider then very little involvement beyond the ability to manage any other employee benefits should be necessary.

Any car provider must have the ability to dovetail seamlessly into any Single Sign-On arrangements via the Employee Benefits Provider, or to provide their own easy-to-use on-line system.

Similarly the car provider must be able to offer significant support in developing awareness of the scheme as well as the required account management in the important areas such as payroll reduction reporting and the management of both in-life and endof-life incidental charges.’

Meanwhile according to LeasePlan, while fleets should have a good idea of what they want to achieve with their salary sacrifice scheme, it’s not essential to have run one before: ‘Prior experience of providing a benefit to an employee population should be expertise enough to administer a great salary sacrifice scheme in partnership with the right provider.

‘A salary sacrifice car scheme is not an “off the shelf” product so you will need to shape a clear vision of what success looks like for you. Be it measured in staff take up, saving your business money or a combination of factors, your chosen supplier should help with this process and then provide the expertise to design and build a scheme which is a best fit.

‘LeasePlan are able to help throughout the entire process, from initial discussions, design & build, benefits integration, risk mitigation, admin and communication and then on throughout the life-cycle of the product. If built correctly, then once a scheme is in place it should be virtually admin and cost-free.’

 

Does the provider require the company to have a large employee base to implement a successful salary sacrifice scheme?

This is another key question and one where many SMEs may believe they are precluded from running such schemes, but LeasePlan says that salary sacrifice is not just the preserve of larger fleets.

The firm comments: ‘There’s no hiding from the fact that salary sacrifice is traditionally more attractive to companies with a large employee base, however smaller businesses are certainly not exempt.

‘If you are a company with a smaller employee base (less than 500) then it’s crucial when selecting your provider that both parties are talking openly early in proceedings about the suitability of the scheme. These conversations should cover a number of factors which need to be in place when dealing with a smaller population including; low staff turnover, an established benefits platform and a high proportion of employees above the minimum wage.

‘The experience we’ve built at LeasePlan of having been through several vehicle lifecycles, and the familiarity which comes with building your own salary sacrifice scheme means we’re truly qualified to help you reach the right decision about whether this benefits product is right for your business, regardless of the size of your employee base.’

 

Are you better off being a big fish in a small pond, or a small fish in a big one?

Once you’ve determined that salary sacrifice is for you, it’s vital to find the right provider to work with. And one key question will be about what size salary sacrifice provider you want to work with.

Tusker’s chief commercial officer, Iain Carmichael, says: ‘The provision of salary sacrifice schemes is a highly complex business – hence the emergence of specialists in the marketplace. Cars are a highly emotive subject for most people, but they fall into insignificance in relation to the reduction of each individual’s salaries.

Ideally a supplier should be able to offer a bespoke scheme designed to meet all of your particular requirements – and any driver system should be capable of conveying 100% accurate information to the driver in real time. So a big fish within this arena – that delivers the best offer to drivers through investment in people and systems and that really understands this very demanding sector – will ultimately provide the ultimate solution to most needs.’

 

Is a sole-supply agreement better than having multiple, competing suppliers?

This is another key area when it comes to assessing providers that you want to work with.

According to LeasePlan a sole supply agreement would always be preferable to a multi-supply model.

The firm comments: ‘It’s a significant choice for you as an employer to implement a salary sacrifice scheme. In making that choice you will need to be very clear about what you are looking to achieve and the subsequent message to your employee base. In the past we’ve seen employers try and adopt a multisupply model in an attempt to drive competition and force down pricing.

Even where this stated goal has been achieved it overlooks the fact that a salary sacrifice car is an important life choice for an employee and making that choice as clear and simple as possible is critical.

‘At the heart of it, a salary sacrifice scheme is an opportunity for a provider to influence and educate an employee base who may have never been exposed

to company cars or the related Benefit in Kind considerations before. It makes sense then that the communications need to be clear and explain things that may already be obvious to a company car driver. If more than one supplier is involved in influencing this decision then the differing communications may muddy the water and leave employees struggling to understand on what basis to make a decision. What’s even worse is that someone from your business (you?) may have a requirement to spend lots of time translating and aligning these competing messages.

‘In summary, making it as easy as possible by having a concise and tailored communications plan from a single supplier will ensure the employees are educated, excited and ready to make an informed decision.’

Iain Carmichael of Tusker reiterates this, commenting: ‘Providers of car salary sacrifice schemes are essentially in the employee benefits business.

Most HR departments wouldn’t contemplate having more than one provider of these benefits.

‘And although cars supplied under salary sacrifice are to all intents and purposes the same as company cars, in practice the drivers of salary sacrifice

have significantly different requirements to company car drivers. Fleet managers may look to disaggregate the contract hire package by using different suppliers to offer fleet management and funding, but with salary sacrifice schemes this causes all sorts of issues with regard to consistency of customer service. Therefore, almost all salary sacrifice schemes that are currently in operation have a solus supplier for both funding and scheme management. A few highly sophisticated providers have the capability of offering competitive tendering for funding, but even here there still can be issues around the variable treatment of in-life issues such as early termination polices, contract rewrites etc.’

 

Is price more important than service?

The eternal question, this will also play a fundamental role in choosing a salary sacrifice supplier.

LeasePlan comments: ‘Although the answer may be pre-determined by the financial objectives of the employer’s business model it’s important to remember the employee’s experience is a function of the service and the perceived value for money. Therefore in order to have any chance of success the product and solution should be cost effective for an employee when compared with what they could secure in the retail market.

‘At LeasePlan we see the value in not only negotiating attractive discounts and mitigating risk for the employer but also when working with our clients to ensure the employee’s end to end experience is a clear, simple and exciting one. A detailed communications plan which leads to this great employee experience can make or break the success of a salary sacrifice scheme. If an employee cannot easily compare the price and service they’re being offered they’re likely to stick with what they know and scheme uptake will suffer as a result.’

And Tusker’s Iain Carmichael adds: ‘This is a very important dynamic. If the price is too high then the uptake will be low. If the service is poor then word of mouth will prevail and a scheme will fail in the medium term. So the answer is no – a fair balance of price (for what is a highly specialist B2C service) and the ability to meet the requirement of a highly demanding customer base (they are sacrificing their salary after all) is what will ultimately deliver the highest level of engagement uptake and savings for the employer and employee alike.’

 

What sort of KPIs should be in place for monitoring supplier performance?

Having found the right partner to work with and roll out a salary sacrifice scheme, fleets need to undertake extensive communications to staff on how the scheme will work for them, supported by a dedicated team to manage any enquiries or queries raised.

However, it’s important to make sure that the scheme is meeting the requirements of the company and of the drivers. As such, firms should ensure they have a clear programme of KPIs agreed with their supplier. 

According to Tusker’s Iain Carmichael these are:

• Meeting of agreed service levels

• Savings measurement

• Driver satisfaction and renewals

• Driver log-ins and scheme penetrations

LeasePlan adds that ultimately, expert consultancy and tailoring along with communication from the employer’s own end will ensure the success of salary sacrifice schemes – but with a raft of benefits on offer to the right fleets, salary sacrifice could be well worth exploring.

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Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.