Why car salary sacrifice is a smart move for businesses in 2025

In today’s business climate, where rising costs and talent shortages go hand in hand, companies are starting to rethink how they attract and retain great people. Offering meaningful, low-cost benefits has become more than a perk; it is now a strategic tool. One benefit that stands out to us is the car salary sacrifice scheme, particularly when focused on electric vehicles.

What is a car salary sacrifice scheme?

A car salary sacrifice scheme allows employees to give up a portion of their gross salary in return for a fully maintained vehicle, usually an electric one. Since payments are made before tax and National Insurance, employees save money and gain access to a new car that comes with insurance, servicing, breakdown cover, and maintenance, all in a fixed monthly cost.

Employers benefit too. By reducing gross salaries, they lower their National Insurance contributions and, in some cases, pension obligations. With Benefit in Kind (BiK) tax on electric vehicles currently at just 2%, this setup is one of the most efficient ways to deliver value to both sides.

More than a perk, it’s business strategy

The numbers speak for themselves. In a recent episode of the Different Hats podcast, one company helped a high-earning employee swap a traditional car allowance for a salary exchange agreement. The result was thousands saved in tax for both the employee and the employer.

However, it goes further than tax savings! Staff retention remains one of the biggest hidden costs to any business. Replacing a team member can cost 10% to 20% of their salary, not to mention lost time and disruption. By providing a benefit that people value, the idea is to reduce employee turnover, as they may not want to give up on their employer as easily. Car salary sacrifice fills this mould as a useful benefit perfectly.

Modern employees expect more than just a payslip. Wellbeing, financial security and sustainability now rank higher than ever. A salary sacrifice scheme touches all three. It supports lower running costs for transport, gives access to newer, safer cars, and reinforces the company’s commitment to sustainability.

As discussed on the podcast, there’s also a “stickiness” factor. Employees who commit to a two or three-year lease are less likely to leave while it is in place. The car becomes a daily reminder of the employer’s investment in their wellbeing.

What about the risks?

No benefit is one size fits all, and salary sacrifice is no different. It is not suitable for employees on lower wages, as take-home pay cannot fall below the legal minimum. A lower gross salary may also affect mortgage applications or statutory benefits like parental leave pay. However, the scheme is optional and most providers include early termination protection. This means that if someone resigns, goes on maternity leave, or becomes unwell, the business is not left carrying the cost. Properly structured, the scheme is low risk and high value.

There is also the credit consideration. Each lease sits under the business’s name, so employers need to plan for the potential number of agreements. Still, with clear processes and a trusted provider, this becomes manageable.

Why electric vehicles?

While salary sacrifice can technically be used for any vehicle, it works best with electric cars. BiK tax for EVs is fixed at 2% until 2025 and will rise only slightly up to 2030. That makes EVs far more efficient to run through a scheme like this. Charging costs are significantly lower too. A home charge can cost around 5p per mile, compared to 15 to 20p for petrol or diesel. Some schemes even include a home charger and support with installation. For those without access to home charging, public infrastructure continues to grow, and workplace chargers are an increasingly popular solution.

An ESG and brand advantage

Offering a scheme like this does more than reduce carbon emissions; it enhances your employer brand. Whether you’re trying to win tenders, recruit younger talent, or show investors you’re serious about ESG, salary sacrifice sends the right message. In a competitive job market, this could be the difference between a candidate choosing your business or another. Imagine being able to offer a new Tesla Model 3 as part of your package. It is a compelling, high-value benefit that costs less than a traditional pay rise.

Getting started is simpler than you think

Launching a car salary sacrifice scheme does not require a large HR or finance team. Most providers support setup, including documentation, payroll integration and staff communications. You can start with a small group and scale over time. Communication is key. As employees often do not realise the savings until they see a quote. Running webinars, sharing FAQs, and offering one-on-one consultations make a big difference in uptake and trust.

The bottom line

Salary sacrifice schemes for electric vehicles are more than just a modern benefit. They offer a cost-effective, flexible way for businesses to reward staff, reduce emissions and protect their bottom line. Whether you are an SME looking to compete for talent or a larger organisation aiming to boost retention and meet ESG goals, this is a benefit that delivers real impact.

To learn more, visit rivervale.co.uk/fleet/car-salary-sacrifice or speak to our Salary Sacrifice Specialist, Warren Keech, to find out more. He’ll help you understand your options, model the savings, and support you every step of the way.