A salary sacrifice lease is good news for both employees and employers alike. It allows both parties to receive value that might ordinarily cost more. But before you enter an agreement, it is crucial to understand the benefits and limitations.
This article presents you with all there is to know about salary sacrifice benefits, salary sacrifice leases, and the pros and cons for the employer and their employee.
What Are Salary Sacrifice Benefits?
Salary sacrifice benefits are non-cash incentives offered by an employer to the employee paid with a portion of their non-taxed income.
This contractual change is usually implemented to help the employee’s financial situation in the event of a lifestyle change.
Common examples are:
- A pregnant partner
- Changes as a result of the coronavirus (COVID-19)
- Marriage or Divorce
It is crucial that this arrangement does not reduce the employee’s cash earnings below the national minimum wage.
What Is a Salary Sacrifice Lease?
A salary sacrifice lease is like any other salary sacrifice benefit but designed towards leasing a brand new vehicle for the employee through a leasing company. You can lease the vehicle for as long as four years with no obligation or fee upfront.
It should not be confused with a company allowance. An allowance provides extra income when you carry out business using your personal vehicle.
What To Know as an Employee?
Although a salary sacrifice lease promises plenty, it still requires careful consideration as it is deducted from your wage or salary.
Here’s the down low before you Google “cheap cars to lease near me”:
The Pros
- The top pick advantage why employees consider a salary sacrifice lease is because it is paid using non-taxed or gross income.
However, depending on the vehicle being leased, the employee might need to pay Benefit-in-kind (BIK) tax.
This is determined by the vehicle’s CO2 emission, with electric and ultra-low emission vehicles (ULEVs) producing less than 75g/km exempted.
- You also don’t have to worry about missing payments or working out the monthly costs as it comes from your salary and is handled by your employer.
- You do not need to provide any upfront payment, deposits or checks.
- Your company would deal with the leasing company on your behalf and, more times than not, would get a better deal than if you dealt with the leasing company as an individual.
- The car is for both business and personal use.
- You have a wide selection of new vehicles to choose from.
The Cons
- A salary sacrifice lease ultimately eats into your salary, which could have a negative impact when applying for a mortgage or credit.
- There are cases where you end up paying more than you will in income tax on BIK tax, depending on the vehicle you are leasing.
What To Know as an Employer?
As an employer, agreeing to a salary sacrifice lease is a zero-cost incentive to motivate and keep your employees happy. Beyond this, having a vehicle affords them the mobility that helps them do their jobs better.
But are there other advantages? Or do the cons (if any) outweigh the pros? Let’s find out.
The Pros
- A salary sacrifice lease reduces your employee’s salary, reducing how much you have to pay in pension contributions and national insurance (NI).
- The scheme is an effective way to provide vehicles for your employees, which they can use for work purposes and makes for more efficient business.
- It speaks about your company in good light. Offering this scheme to your employees is an easy way to stand out from the competition.
The Cons
- The company might need to negotiate wages or salaries if the cash earnings fall below the national minimum.
- The company could be stuck with monthly payments on the vehicle if the employee leaves. An alternative is to incur a charge for early termination of the lease agreement.
What Happens at the End of the Agreement?
The same thing that happens at the end of a personal or business contract hire. The employee returns the leased vehicle with no extra charge, as long as the invested parties have upheld the terms and conditions of the lease.
Also, the employer does not need to worry about what to do with the car as you might expect from a finance lease.
Summary
Agreeing to a salary sacrifice scheme sounds like a win-win for both parties. It saves money for both the employee and employer, gives the business a good outlook and provides vehicles for employees for a better-run business.
However, there are still some drawbacks on both sides of the aisle, and you might want to consider that before you commit to the scheme.