In the race to attract and retain top talent, HR leaders are constantly reassessing how to create a compelling employee value proposition that aligns with evolving expectations around flexibility, wellbeing, cost of living support, and sustainability. While benefits like private healthcare and pensions remain staples, a lesser known but increasingly popular initiative is quietly gaining traction: the salary sacrifice car scheme.

Salary sacrifice car schemes offer employees access to a brand-new car (often electric or hybrid) by sacrificing a portion of their gross salary. In return, they benefit from lower tax, no upfront costs and all-inclusive motoring (including insurance, servicing, breakdown cover, and more). For employers, it’s a cost-neutral benefit that can significantly enhance your organisation’s appeal and support your environmental, social and governance (ESG) objectives.

But what does it actually take to implement one? And how do you ensure it doesn’t become another admin-heavy project for your already stretched HR team?

This practical guide walks you through the key considerations, steps and best practices for introducing a salary sacrifice car scheme without the admin headache.

1. Understand the Basics: What Is a Salary Sacrifice Car Scheme?

Salary sacrifice involves an employee agreeing to give up part of their gross salary in exchange for a non-cash benefit – in this case, the use of a fully maintained car. It often works in a very similar way to other salary sacrifice benefits (like Cycle to Work) which are approved by HMRC, and because the sacrifice is made from gross pay, the employee pays less income tax and National Insurance. Meanwhile, the employer typically sees reduced National Insurance contributions too.

The car is classed as a Benefit-in-Kind (BIK), which means it’s subject to BIK tax, but for electric vehicles (EVs), the rates are currently very low. For the 2025/26 tax year the BIK rate on EVs is just 3%, making salary sacrifice a highly tax-efficient way for employees to access an EV.

2. Identify the Business Case

Before diving in, it’s worth establishing a business case for the scheme, tailored to your organisation’s goals. This may include:

• Enhancing the employee benefits offering without additional employer cost
• Improving employee financial wellbeing, especially in light of cost-of-living pressures
• Supporting green initiatives and ESG goals through an uptake of zero-emission vehicles
• Reducing fleet or grey fleet risks, particularly for companies with staff who use their own vehicles for business travel

The ability to offer brand new EVs to employees across all pay grades (not just high earners) can also contribute to a fairer and more inclusive benefits structure.

3. Choose the Right Provider

A successful scheme relies on the right partner. Look for a provider that offers:

• A fully managed, end-to-end service including leasing, insurance, maintenance, and support
• Clear and compliant documentation including salary sacrifice agreements, financial disclosures and opt-out policies
• Flexible contracts to support different employee profiles (e.g. mileage, car preferences, length of contract)
• A slick, user-friendly digital portal that makes it easy for employees to browse, quote, and apply as well as giving employers access to key documents and policies
• Robust early termination protection for employees who leave or go on long-term absence (e.g. maternity leave, redundancy, resignation)
• Ongoing support for HR teams to handle queries, comms and onboarding

Not all providers are equal so it’s worth reviewing their track record, industry experience and flexibility.

4. Get Internal Buy-In

Engage internal stakeholders early (particularly finance, payroll, legal, and leadership) so they’re fully aware of how the scheme works and what their role is. Key considerations include:

• How the scheme will be communicated to employees
• Payroll system compatibility and processing of deductions
• Treatment of statutory pay and minimum wage compliance
• Legal input on employee agreements and opt-out clauses

A good provider will help you manage these discussions and provide supporting documentation where needed.

5. Keep It Simple for Employees

The most successful schemes are the ones that employees understand and trust. That’s why clear communication is key.

Provide a simple explanation of:

• How salary sacrifice works
• What’s included in the car package (e.g. insurance, servicing, breakdown cover)
• The tax implications (including BIK)
• Example quotes based on typical employee profiles
• Eligibility criteria (e.g. minimum salary, probation periods)

Educational resources like webinars, FAQs and video explainers can also help boost uptake. Make sure employees know they can opt out at any time and that the scheme is voluntary.

6. Address the Admin: What HR Actually Needs to Do

Here’s the good news. With the right provider your HR team’s workload should be minimal.

Most providers handle:

• Employee quotes and vehicle sourcing
• Credit checks and leasing agreements
• Insurance setup and servicing logistics
• Payroll deduction schedules
• End-of-contract arrangements

Your role is largely limited to approving applications, uploading payroll deductions and supporting internal comms. Providers like Pink Salary Exchange offer dedicated account managers to handle the rest.

7. Consider Inclusion and Affordability

Salary sacrifice schemes are only available to employees whose adjusted pay won’t fall below National Minimum Wage (NMW) after deductions. This can limit access for lower-paid employees, so it’s important to assess your workforce demographics.

You may also want to:

• Set eligibility thresholds
• Offer alternative benefits for those not eligible
• Promote used or lower-cost EVs to widen appeal

Your provider should carry out affordability checks and ensure full compliance with NMW legislation and other regulatory requirements.

8. Monitor and Optimise

Once launched, it’s important to monitor how the scheme is being used. Useful KPIs include:

• Uptake rates across departments or pay bands
• Average monthly savings per employee
• Feedback from employee surveys
• Any impact on recruitment or retention metrics
• Reduction in grey fleet risks

Use this insight to inform ongoing communications, refine the scheme and report success back to leadership.

9. The Future-Proof Factor

With the government’s continued push towards net zero and the incoming 2035 ban on new petrol and diesel cars, EV adoption is only going to increase. Offering a salary sacrifice car scheme now positions your organisation as forward-thinking, environmentally conscious and attuned to employee needs.

It also allows you to:

• Encourage greener commuting habits
• Replace ageing grey fleet vehicles with newer, safer alternatives
• Keep pace with competitors offering modern, tax-efficient benefits

As BIK rates and government policies evolve, make sure your provider is keeping you informed and agile.

10. Final Thought: It’s Simpler Than You Think

Many HR leaders assume that implementing a car salary sacrifice scheme will be complex or time-consuming. In reality, a good provider will do the heavy lifting, so your team can focus on strategy and culture.

At a time when employees are looking for practical support with rising living costs, and organisations are under pressure to meet sustainability goals, a car salary sacrifice scheme offers a smart, scalable and surprisingly simple solution.