As fleet operators up the ante to meet ambitious sustainability goals, many are starting to take a more holistic approach to electrification. That means looking beyond their Scope 1 emissions (emissions that occur from sources that are controlled or owned by the business).

For employees who don’t qualify for a company car, cost can be a significant barrier to adopting electric vehicles (EVs). As a result, many businesses’ scope 3 emissions remain high. Jack Tanner, Head of New Business at Volkswagen Financial Services (VWFS) Fleet, discusses how a salary sacrifice scheme can be a win-win for fleet operators and employees.

The ongoing cost-of-living crisis is putting individuals’ finances under more strain than ever before. In tandem with the global push for sustainability, 56% of drivers would consider switching to an EV, but feel the costs are too high. For employees who don’t qualify for company car schemes and are self-funding their vehicles, many are opting to stick to ICE vehicles as a more cost-effective means of transport.

However, this is creating a significant challenge for businesses and fleet operators. Grey fleet vehicles are still making up a significant portion of companies’ overall emissions. In fact, scope 3 (indirect) emissions actually account for between 65 and 95% of most companies’ carbon impact. To meet ambitious sustainability targets, businesses need to consider how they can bring scope 3 emissions down. A key part of that is encouraging EV adoption for employees outside of company car schemes.

A salary sacrifice scheme is a highly attractive financial benefit that can help businesses incentivise EV adoption for employees. At no cost to the employer, salary sacrifice car schemes enable a vehicle’s monthly lease payments to be ‘sacrificed’ from an employee’s gross (pre-tax) salary each month. This means employees who don’t qualify for a company car can access a brand-new vehicle at an affordable price point – with no upfront payment, no early termination fees and no hidden costs.

Additionally, as deductions are made pre-tax, employees will also see a reduction in income tax and thereby NI contributions. All the extra costs – including insurance, servicing, maintenance and breakdown cover – are included in the vehicle’s monthly cost through a salary sacrifice scheme. This means employees don’t need to worry about any unexpected costs to keep the car on the road.

As a result, salary sacrifice car schemes are increasingly seen as an incredibly valuable addition to an employee’s remuneration package, and an effective way to enhance staff engagement.

How does salary sacrifice incentivise EVs?

While salary sacrifice schemes make brand-new vehicles more affordable for employees, they also heavily incentivise EV adoption. Through a salary sacrifice scheme, the benefit-in-kind (BIK) tax obligation for EVs is currently just 2% and will stay at this level until April 2025. It will then rise by 1% each year up until the 2027/2028 tax year, remaining significantly below the BIK associated with ICE vehicles, which could exceed 30%.

As well as personal tax benefits, employees selecting an EV will also find their running costs are significantly less, particularly if they can charge up overnight at home or during the working day if EV charging points have been installed at their workplace.

Financial plus points for businesses

But it’s not just employees that financially benefit here. Offering electric vehicles through a salary sacrifice scheme also offers substantial Class 1A National Insurance (NI) reductions for companies. Businesses can typically save around £80 to £100 per employee per month for each zero-emission vehicle on the scheme. At a time when organisations need to offer competitive benefits to stand out in the recruitment market while potentially battling rising costs themselves, a salary sacrifice scheme is a cost-free way to remain competitive in a tight talent market.

Going green

As mentioned, to meet ambitious sustainability goals, businesses are having to look at how to reduce all aspects of their emissions to pave the way to a net-zero future.

With salary sacrifice car schemes incentivising the transition to EVs for many employees, who would have otherwise been priced out of the switch. It’s an incredibly effective tool to reduce ‘hidden’ scope 3 emissions, cutting out tailpipe emissions from employees driving their own vehicles for business purposes or commuting.

Alongside the financial advantages for employees, improved sustainability comes with its own talent attraction. IBM research found that 67% of people would accept jobs from organisations they consider to be environmentally sustainable.

Help at hand

As the lease agreement with salary sacrifice schemes sits with the employer, many businesses are concerned about what happens to the vehicle cost should an employee leave.

VWFS Fleet supports its customers’ fleets with lifestyle protection, meaning if an employee leaves through resignation, retirement, redundancy or long-term sickness, amongst a myriad of other scenarios, the early termination fee would be covered.

VWFS Fleet also undertakes ‘Salary Sacrifice roadshows’, which highlight the many tangible benefits to staff and organisations and showcase innovative online tools such as ‘EV-4-Me?’ that help advise employees understand what type of EV would meet their journey needs.

Salary sacrifice can revolutionise an organisation’s benefits package and help to attract talent through a financial incentive outside of salary when recruiting, while also improving the company’s carbon footprint and reducing costs. It’s a no-brainer.

Visit VWFS Fleet’s Salary Sacrifice guidance for more information.