Salary Sacrifice Scheme

Salary Sacrifice Scheme

A salary sacrifice scheme is a popular employee benefit that allows employees to give up a portion of their salary in return for certain non-cash benefits. In the context of contract hire and leasing, a salary sacrifice scheme can be used to provide employees with a company car.

Pros for Employers of implemeting a salary sacrifice scheme

By offering a company car through a salary sacrifice scheme, employers can take advantage of various tax and National Insurance contributions (NICs) savings. This can result in significant cost savings for the employer.


A salary sacrifice scheme can be an attractive benefit for employees, especially those who might not be able to afford a company car otherwise. By offering this benefit, employers can attract and retain talented individuals, enhancing their overall employee value proposition.


In today’s environmentally-conscious world, offering a salary sacrifice scheme for electric or low-emission vehicles can help employers demonstrate their commitment to sustainability. This can enhance the company’s reputation and appeal to environmentally-conscious employees.


Considerations for Employers of implemeting a salary sacrifice scheme

Salary sacrifice schemes can affect an employee’s pension contributions and benefits. Employers should communicate these potential impacts clearly to employees to avoid any misunderstandings or dissatisfaction.

Not all employees may be eligible for a salary sacrifice scheme, particularly if they are already on a low salary or have other financial commitments. Employers should carefully consider the eligibility criteria and ensure they are fair and transparent.

Pros for Employees

By sacrificing a portion of their salary, employees can enjoy the benefits of a company car without incurring the full cost of ownership. This can help them save money on purchasing, maintaining, and insuring a vehicle.


Having access to a company car can provide employees with convenience and flexibility in their daily commute or business travel. It eliminates the need to rely on public transportation or worry about vehicle maintenance.


By opting for a salary sacrifice scheme, employees can potentially reduce their tax liability and National Insurance contributions. This can result in higher take-home pay and overall financial savings.

Employee Considerations

Participating in a salary sacrifice scheme means giving up a portion of one’s cash salary. This can have an impact on an employee’s monthly budget and financial obligations.

Depending on the value of the company car provided, employees may be liable for Benefit-in-Kind (BIK) tax. This tax is calculated based on the car’s value and CO2 emissions and can reduce the overall financial benefit of the scheme.


Employers may have a limited range of vehicles available for the salary sacrifice scheme. Employees may have to compromise on their preferred make or model of the car.

In conclusion, a salary sacrifice scheme can be a mutually beneficial arrangement for both employers and employees. It offers cost savings, employee attraction, and environmental benefits for employers, while providing cost savings, convenience, and potential tax benefits for employees. However, careful consideration should be given to the administrative, eligibility criteria, and potential drawbacks associated with participating in a salary sacrifice scheme.