Salary sacrifice is becoming more popular in the green movement. Thom Groot charts the development of salary sacrifice schemes as the UK moves towards net zero and how employers can benefit from them.
Salary Sacrifice Schemes are a long-standing tool that is popular with both employees and employers. They offer a tax efficient way for individuals and businesses to improve their employee benefit packages. In the last five years, there has been a significant evolution of these schemes, especially in areas such as electric vehicles (EVs).
This transformation reflects an increasing commitment to sustainability, equity and the role that these schemes can have in driving broader social change.
Early adoption and growth in the past
Salary sacrifice schemes were initially used primarily for traditional benefits such as pension contributions, childcare vouchers and initiatives to encourage cycling to work.
The cycle-to work scheme is the best example of the savings which could be made to improve quality of life immediately and to provide upgraded transport options. In introducing the scheme, the government had a very clear intention: to make commutes more environmentally friendly and to encourage people to exercise for their health and to benefit NHS. These became desirable benefits for anyone looking to upgrade or add exercise to their commute.
Employees can exchange their gross salaries for non-cash benefits, which reduces tax and national insurance obligations. Pensions provided long-term value, but newer options such as EV schemes offered immediate benefits.
Employers have embraced electric vehicles because they offer a dual benefit: reducing their carbon footprint and offering valuable benefits. The government incentives such as the reduced benefit-in kind (BIK), made EV schemes very attractive. Employees could save up to 50% in monthly car costs.
Salary sacrifices have become a driving force in the adoption of electric cars, allowing employees to affordably access EVs.
The EV salary-sacrifice program has been a driving force in the adoption of EVs. It offers affordable rates, and encourages employee retention by offering three- to four-year leases. This strengthens the relationship between employers and employees.
Present: a world of increased accessibility and expanded horizons
This year, the increased accessibility of salary sacrifice schemes has been one of the biggest changes. These schemes have traditionally been more suited to high-earners who can maximize tax savings. Recent developments have expanded their appeal.
Second-hand EVs are now included in salary sacrifice plans, which is a major game changer. The monthly cost for an EV has been reduced by up to 50%. The cost of an EV has been reduced by 40% to 50% for people on lower incomes.
Employees who could not afford a new EV now have the option to choose a used model and benefit from lower monthly deductions as well as the same tax benefits. Used EVs are also in line with broader environmental objectives by extending their lifecycle and reducing waste.
Moreover, innovative offers like the Charge Scheme has further enhanced accessibility.
Employees can save up to 50% on charging costs by incorporating home, office, and public charging into their salary sacrifice plans. Employers can offer these options at no additional cost, allowing more people to drive EVs and ease financial pressures.
Many employers have also been prompted by the rising cost of living to diversify their products offered through these schemes. They recognize the importance of providing tangible financial relief. Salary sacrifices have expanded to include items like gym memberships, home office equipment and wellness services.
Salary sacrifice: a sustainable tool
Salary sacrifice plans will play a major role in the future when it comes to promoting sustainable living. Solar panels, heat pump technology, and other renewable technologies are on the horizon. Their inclusion in such schemes can have a transformational impact.
Solar panels
Solar panels are a great product to use for salary-sacrificing schemes. Solar panels are in line with sustainability goals and offer users long-term financial advantages. They also contribute to energy independence. Salary sacrifices could help make solar panels more affordable for a wider demographic. Solar panels could be paid for by employees through monthly deductions that are manageable from their pretax salary. This would reduce the financial burden.
This expansion has enormous potential. Salary sacrifice schemes can accelerate the transition to renewable energy by allowing more households install solar panels. They could also reduce the reliance on fossil-fuels and help the UK reach its net zero targets. For this vision to be a reality, the government’s support is crucial.
Government incentives: What role do they play?
The success of salary-sacrifice schemes has been largely due to government incentives, especially in the EV sector. These schemes are attractive to employees and employers because of the low BIK rates. Salary sacrifices for solar panels and heat pump products will need to be expanded in a similar way. This should lead to a greater uptake of these essential elements, ensuring our homes are carbon neutral by the year 2050.
The upfront costs will likely remain prohibitive without incentives like salary sacrifice.
Salary sacrifice: Unlocking its potential
Salary sacrifice schemes have evolved over the last five years, demonstrating their adaptability and power as a force of good. These schemes, which initially focused on traditional benefits and then moved to driving EV adoption as well as their potential future in decarbonising households, show the power of collaboration between public and private sectors in tackling societal issues.
The core of this strategy is to provide employees with non-cash rewards that they value, increasing their likelihood to stay longer at your company.
