Everything you need to know about salary sacrifice schemes
Salary sacrifice schemes are becoming more and more popular in the UK - and for good reason. We explore how salary sacrifice works for employers and employees, the most common types of schemes, and which types are most worth the time and money.
How does salary sacrifice work for employers?
Salary sacrifice is a voluntary arrangement between an employer and employee, where the employee agrees to give up part of their salary in return for benefits of a similar value. The most common types of salary sacrifice schemes are cycle-to-work, childcare, pensions and car leasing.
These schemes are usually easy (and often free) for employers to set up and only take a small amount of admin, and they can be very attractive to employees. Employers just need to make sure they take the deduction from the employee’s salary and report it on their payslips and to HMRC. It’s important that employers also check that they’re not lowering their employees' salaries to under the national minimum wage by offering the salary sacrifice benefit.
What are the advantages of salary sacrifice for employers?
There are loads of advantages of salary sacrifice for employers. These can be:
- Reduced National Insurance Contributions. As salary sacrifice is a voluntary agreement between employer and employee, National Insurance contributions are not paid on the amount of salary sacrificed. This means savings for the employer, especially if they have a large number of employees enrolled in salary sacrifice schemes.
- Better employee retention and motivation. Salary sacrifice schemes can help boost employee morale since they provide a reward for their loyalty and commitment to the company.
- Improved cash flow. As salary sacrifice schemes are typically paid for before taxes are deducted, this can lead to improved cash flow for employers.
- Easy admin. Most salary sacrifice schemes are really easy to set up and administer, which means you won't be wasting time and money on complicated HR processes. Our EV scheme takes minimal admin to run, and it’s super easy to do with your own online HR portal to manage your team’s requests.
- Improved sustainability. EV salary sacrifice is a great way to encourage employees to make more environmentally-friendly travel choices, which can help your company meet its sustainability goals and promote a greener workplace.
How does salary sacrifice work for employees?
You give up some of your taxable salary in return for a brand new EV. You choose the model that suits you, with over 65 available, and the length of your contract. You’ll see the deduction on your payslip each month, and make tax savings as a result but other than that, everything else is taken care of by us.
So what are the advantages of salary sacrifice for employees?
You’ve guessed it! There are loads of advantages of salary sacrifice for employees, like:
- A brand new EV. One that’s fully maintained, plus a package that includes everything you need to hit the road including a home charger, installed for free by an expert Octopus engineer. And 5,000 free miles if you charge at home and switch to Intelligent Octopus - the specialist EV energy tariff. Or 5,000 free miles if you charge on the public network with Octopus Electric Universe.
- Tax benefits. When people ask "what is the advantage of salary sacrifice?", we often start with the biggest pro: tax benefits. When looking at salary sacrifice vs net pay, you’ll get the benefit of driving and EV and lower tax deductions.
- Sustainability. By getting an EV through salary sacrifice, you not only save money on getting and running your car, but you will also be doing your bit for the planet.
- Fewer expenses. As costs are fixed, you’ll know exactly how much your salary will be each month, making budgeting easy-peasy. Plus, you won't have to worry about unexpected maintenance and service costs, and that can bring real peace of mind. There are no deposits and inflation doesn’t impact the cost once you have your car. You don’t need to pay for insurance that increases every year. The list goes on…
Is there a limit on salary sacrifice?
The only limit is that your net pay can’t go below the National Minimum Wage. So what does this mean? Employees who earn more will be able to sacrifice more of their salaries and can benefit from greater tax savings, which is why salary sacrifice schemes are a great way to retain top talent and employees in senior positions.
Are salary sacrifice car schemes worth it?
Absolutely! An EV salary sacrifice scheme can be a great way to save money on taxes and offer your team the chance to drive a brand-new, environmentally-friendly car. This is why salary sacrifice schemes are becoming very popular, and we expect to see more employers and employees taking advantage of them in the near future.
And remember that with us, you get the whole package. A brand new, environmentally-friendly car with all the tax benefits of salary sacrifice. Plus, a free home charger and no worries about service and maintenance costs as they’re included.
So, to maximise your employees' earnings, reduce your costs and help carve the path to sustainability - sign up for our scheme today. Our customer stories speak for themselves, but if you have any questions, feel free to refer to our FAQs or contact us directly to speak to an expert.