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Turning car salary
sacrifice on its head
There are two ways to structure schemes
Guy Roberts | Director of Novalease
at SG Fleet
When we speak to employers about car salary
sacrifice schemes, the two main questions they
typically ask are what if an employee leaves, and
will there be a lot of administration? The answers
depend on the scheme structure.
There are two well-established ways to structure
car salary sacrifice arrangements: novated leasing
and corporate leasing.
Novated leasing originated in Australia, where car
salary sacrifice has been around for 25 years, and
has been used in the UK for more than three years.
Novated leasing has been designed specifically for
car salary sacrifice and as a voluntary benefit,
whereas the corporate leasing structure is based on
a fleet product, which can create a number of issues.
What if an employee leaves?
Under a corporate leasing structure, if an employee
leaves, they leave the car with the employer,
creating potential issues with redeployment of the
car or a potential early termination cost. This can be
mitigated by the provider or the employer (or often
both) setting up contingency funding. However,
there may be gaps, such as no cover for the first six
months of an employee’s lease.
With novated leasing, the employee takes their car
with them if they leave, removing the need for
contingency cover and the cost of including that
cover in their monthly salary sacrifice. The employee
has the option to take their salary sacrifice
arrangement to their new employer or they can
continue the lease directly with the provider.
Administration
The other main question is: what administration is
involved? The answer also depends on the scheme
structure. With corporate leasing, the employer is
ultimately responsible for the cars. Problems such
as speeding tickets, parking fines and damage to
the car can come back to the employer. Most
providers will initially
request payment from
the employee, but if it is
not paid, the provider
will invoice the employer.
The employer will then
have employee relations
to deal with and will
need to find a way to
recover the costs from
the employee.
With novated leasing,
all employers need to do
is manage the monthly
payroll deduction. Any
other costs are the
responsibility of the
employee. As a result,
there will be no
involvement required from the employer.
So if employers are looking at a scheme, or are
already running one, they should consider which
structure best suits their organisation n
What if an employee leaves?
Corporate leasing
Novated leasing
Employee has to leave the car with employer
Portable: The employee takes their car with them
Redeploy the car?
– Difficult as now not a new car and may be pink
Employee can take their arrangement to any new
employer
Terminate the contract and employer is ultimately
liable for any penalties
Or continue lease directly with provider
Employer can use contingency cover
– No cover in first six months of lease
– Additional cost for all employees
No need to restructure the lease
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|N ovember 2015|
employeebenefits.co.uk/benefits/company-cars-and-fleet