Running a successful salary sacrifice car leasing scheme
- Salary sacrifice car leasing schemes can increase the competitiveness of a NHS trust’s employee benefits package
- They are becoming increasingly popular, but there are a number of inherent risks that organisations must consider
- Zurich Municipal can help customers with insurance advice and coverage for existing or new schemes
NHS trusts will often choose to lease, rather than purchase, their own fleet of vehicles, and the benefits of leasing generally are well established and documented.
Whilst this may be the situation for vehicles that are essential to a trust’s day to day activities, many organisations have been looking at alternative leasing arrangements as a means of offering a tax-efficient employee benefit, as well as an alternative to traditional car leasing.
Salary sacrifice car leasing schemes are increasing in popularity across the public and private sectors. While these schemes can help organisations achieve their wider goals, poor planning and management can easily turn them into a costly mistake.
Zurich Municipal is happy to discuss insurance arrangements with customers who have, or are considering setting up, a salary sacrifice car leasing scheme
John Knapman, Senior Product Underwriter (Motor) at Zurich
Salary sacrifice schemes allow employees to exchange a proportion of their earnings in return for a non-cash benefit – in this case a leased car.
The organisation receives a vehicle from the leasing company, enjoying the benefit of corporate discounts and levels of manufacturer support that individuals would not normally receive – these benefits are passed on to the employee. Additionally, as deductions are made directly from an employee’s salary, they benefit from savings on income tax and national insurance, and the employer also pays a lower national insurance contribution.
Salary sacrifice car leasing schemes can make vehicles available to employees who may not benefit from traditional company car provisions This may increase the competitiveness of a benefits package, helping to attract and retain staff.
How a benefit can become a burden
But, while such schemes can be beneficial to NHS trusts, there are a number of important considerations regarding their structure and on-going management, including insurance.
For the scheme to remain financially viable, employee contributions must stay sufficient to pay the lease instalments. Events that can reduce employee contributions, such as resignations or maternity or paternity leave, must therefore be anticipated, with the scheme structured to account for these.
Leasing arrangements will typically include conditions relating to mileage, damage and other factors. Without a properly structured scheme, employers could face unexpected charges or penalties.
The insurance arrangements need to be carefully considered and, in view of the different ownership of vehicles, Zurich Municipal recommends a separate policy for salary sacrifice vehicles, reflecting both the interest of individual employees and their preferred approach to cover and eligible drivers.
Don’t risk getting it wrong
NHS trusts can take steps to ensure their scheme achieves its objectives and avoids unexpected headaches. Many of the associated risks can be mitigated through the terms and conditions of the scheme itself, insurance arrangements and other risk management controls. Zurich Municipal suggests initial contact is made with an established fleet management company, such as Knowles Associates Total Fleet Management, who will be able to help structure an appropriate scheme.
In terms of obtaining insurance to meet employer and employee requirements, capacity in the market can be limited.
“Some Fleet insurers are unwilling to insure salary sacrifice car leasing schemes, particularly in their early set up stages,” says John Knapman, Senior Product Underwriter (Motor) at Zurich.
“Zurich Municipal, however, is happy to discuss insurance arrangements with existing or potential new customers who have, or are considering setting up, a salary sacrifice car leasing scheme.”