Why the Risk of Salary Sacrifice Leasing Is Worth Managing

Every salary sacrifice car scheme carries some risk. Employees leave, and personal circumstances change. Long-term absence, affordability concerns and early terminations can occasionally result in a vehicle being returned before the end of its lease. For some employers, the possibility of having a small number of cars come back is enough to delay launching a scheme or not proceeding altogether.

But that focuses too heavily on what might go wrong, rather than what the business could gain. The better question is not whether salary sacrifice is completely risk-free. It is whether the risk of a few vehicles being returned is worth managing when the wider benefits can be so valuable. For many employers, the answer is yes.

Let's start with the bigger picture

A salary sacrifice car scheme is not simply a way for employees to access a new electric vehicle. It can strengthen the overall reward package, support recruitment, improve employee retention and make the business more attractive to both current and future employees. It can also help employees access an electric vehicle in a more affordable and convenient way, often including costs such as maintenance, servicing and motor insurance within one regular deduction.

At the same time, the scheme may generate employer National Insurance savings and support wider sustainability objectives. These benefits can be delivered across the workforce, month after month.

Against that, an employer may occasionally need to manage an early termination or a vehicle that becomes available partway through its contract. That is a real risk, but it should be kept in proportion.

A few returned vehicles should not outweigh the wider value

It is easy to focus on the cost of a few vehicles being returned. It is harder to calculate the value of an employee who chooses to stay because they appreciate their benefits package, or the cost of losing a strong candidate, because another employer offers more meaningful benefits.

Replacing an employee can involve recruitment fees, management time, training, reduced productivity and disruption to the wider team.

If a salary sacrifice scheme helps retain even a small number of employees, improves recruitment outcomes or strengthens the employer’s proposition, the value created could significantly outweigh the cost of managing an occasional returned vehicle.

Gallup, the well-established global analytics, polling and workplace advisory company, estimates that replacing an employee can cost around 40% of annual salary for frontline roles. 80% for technical professionals and as much as 200% for managers and leaders, before the wider impact of lost knowledge, reduced productivity and disruption is considered.

The same applies to employee engagement. A new electric car is a visible, practical benefit that an employee uses every day. It is not an occasional discount or a benefit that is easily forgotten. It can become a meaningful part of the employee’s overall reward package and their relationship with the employer. That value should form part of the risk calculation.

Risk should be managed, not avoided

The answer, of course, is not to ignore early termination risk. Employers should understand what happens if an employee leaves, how deductions are stopped, who is responsible for any termination costs and whether the vehicle can be transferred or offered to another employee.

Affordability checks, minimum wage controls, clear employee documentation and accurate payroll processes should all be in place before the scheme launches.

Employers can also consider several ways of reducing their exposure, including early termination insurance, funder protection, internal risk reserves and processes for reallocating returned vehicles. The right approach will depend on the size, workforce and risk appetite of the employer. One thing to remember, however that any type of protection or insurance increases the cost to either the employee, the business or both, effectively reducing staff take-up and the effectiveness of the scheme as a whole.

What matters is that the process is planned in advance. When a salary sacrifice scheme is designed properly and supported by an experienced provider, a returned vehicle becomes a manageable operational issue rather than an unexpected crisis.

The bigger risk might be doing nothing

Avoiding salary sacrifice may feel like the safest option, but it also carries a risk.

The business could miss an opportunity to improve staff retention, attract new talent, support employees with the cost of driving, reduce employment costs and demonstrate a practical commitment to sustainability.

Competitors may already be offering salary sacrifice as part of their benefits package. Employees increasingly compare the complete employment proposition, not just the headline salary.

Doing nothing may avoid the possibility of managing an early termination, but it may also mean losing out on the much greater value a successful scheme can create. No business decision is entirely risk-free. The aim should not be to remove every possible risk. It should be to understand the risk, control it and decide whether the potential return justifies it.

For many employers, the possibility of a few cars coming back is a small and manageable price to pay for a benefit that can improve recruitment, retention, employee satisfaction and the wider employer proposition.

Salary sacrifice is not risk-free, but it is a risk worth managing.