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The rise of company car salary sacrifice

Salary sacrifice is becoming an increasingly important part of firms' social responsibility policies and is seen as one useful way to reward staff with attractive, tax efficient benefits.

Through salary sacrifice, an employee agrees to give up some of their earnings in return for their employer agreeing to provide some kind of non-cash product or benefit.

Importantly, the salary sacrifice is made before tax and National Insurance is calculated, meaning there is a recognisable, concrete discount on the product or benefit.

An example of salary sacrifice: an employee earning £40,000 a year with no benefits can agree to be paid £34,800 a year and 52 childcare vouchers a year, each with a face value of £100.

Other examples of salary sacrifice include the Cycle to Work scheme, through which employees can buy a bicycle to use to get to work tax free. There are also discounts on leisure and fitness activities, like cinema tickets and gym memberships.

A growing trend is that of salary sacrifice towards a company car. Salary sacrifice car schemes make company cars available to employees not normally entitled to receive them, and usually at considerably discounted prices.

Environmentally newer vehicles also reduce the carbon footprint of a company and driver by emitting less CO2 and ensure that vehicles used by staff members are some of the safest on the road benefitting from the latest safety features.

This year for example, National Grid introduced a salary sacrifice car scheme to all its 10,000 UK employees. The scheme was launched on January 25th and 100 new car orders were made in the first 48 hours.

Caroline Adams, employee benefits manager at National Grid, said: "Our flexible benefits plan is an important element of National Grid's total reward package. We see the introduction of salary sacrifice cars as a great way of broadening its appeal."

With salary sacrifice car schemes clearly on the rise, this article discusses how organisations can ensure the right risk management controls are in place if they are to offer their staff access to a company car through salary sacrifice.

It is imperative that employers recognise that however a company car is leased to an employee, legislative requirements and controls must be in place, just as they would be for any other company vehicle.

Employers are legally responsible for employees who drive whilst at work, and must meet certain requirements to ensure they follow a duty of care. The biggest risk to employers is that they can in some cases be liable for driving at work accidents and damage incurred to company cars, so effective risk strategies must be put in place.

If a firm is going to offer a salary sacrifice scheme for cars, it is important that a senior manager with specific responsibility for driving at work is appointed. An appropriate health and safety policy, which features a formal driving at work should also be implemented.

Risk assessments, that monitor driver and vehicle safety and journey planning, should also be regularly completed and, crucially, acted upon as required and reviewed on an annual basis. There should be a formal system in place to collate and investigate all incidents involving company vehicles.

This database of incidents can then be used to take action to reduce recurrence.

It is important that these steps are implemented; failing to do so could put firms at risk of liability further down the line and affect the health, safety and wellbeing of employees and others.

Driver safety is another vital issue. A 2001 report from The Work-related Road Safety Task Group, entitled, Reducing at-work road traffic incidents, said many firms attributed driver training as one measure that had helped to significantly improve incident rates.

"Management interventions – incentives, penalties, incident reviews, driver monitoring systems, driver feedback – have been tried and the organisations which said they had achieved most in safety terms were those that had introduced a package of measures based on a strong safety culture," the report said.

Bringing all these measures together into a formal company car health and safety policy is one way to help reduce the risk of work-related vehicle incidents.