The most powerful employee benefit – here’s why employers are taking notice

If you’re paying employer National Insurance on your entire salary bill, you’re leaving money on the table. Salary sacrifice car schemes are one of the few legitimate ways to reduce that bill — and in the current climate, more UK employers are paying close attention.

Here’s a clear-eyed look at how it works, what it’s actually worth, and what to watch out for.

What is salary sacrifice?

Salary sacrifice is a formal arrangement where an employee agrees to give up part of their gross salary in exchange for a non-cash benefit — in this case, a car. Because the salary reduction happens before tax and National Insurance are calculated, both the employee and the employer pay less.
The employee gets a car. The employer pays less National Insurance. Done well, it costs the employer nothing to run — and in many cases generates a net saving.

Where the employer saving comes from

Employer National Insurance is currently 15% of an employee’s earnings above the secondary threshold. When an employee reduces their gross salary through salary sacrifice, that reduction flows directly into a lower NI bill for the business.
As a straightforward example: an employee on £60,000 who sacrifices £500 per month saves the business £900 per year in employer NI on that one employee alone. Across a workforce of 50, 100 or 500 people, that adds up quickly.
The saving scales with take-up. The more employees who participate, the greater the aggregate NI reduction.

The electric vehicle dimension

The employer saving is amplified significantly when the sacrifice is for an electric vehicle. The Benefit in Kind (BiK) rate for fully electric cars is just 4% in 2026/27 — compared to 25–37% for petrol and diesel vehicles. That low BiK rate makes the employee’s portion of the arrangement considerably more attractive, which drives higher take-up. That in turn generates more employer NI savings.
It’s one of the reasons salary sacrifice and the transition to electric vehicles are so closely linked. The tax environment has been deliberately shaped to make this combination work well.

What employers need to think about

Salary sacrifice isn’t entirely without complexity. There are a few things worth understanding before you set one up:

• The salary floor. Employees cannot sacrifice below National Minimum Wage, so the scheme isn’t available to all employees at all salary levels. You’ll need to apply a floor during scheme design.
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  TUPE and redundancy implications. A salary sacrifice arrangement is a contractual change. It needs to be clearly documented so it doesn’t create complications if an employee moves role or is made redundant.
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  Scheme administration. Most salary sacrifice car schemes are operated through a funder or scheme operator who handles the lease, insurance and administration. The employer’s job is primarily to communicate the scheme, manage sign-ups and process the payroll deduction.
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  Choosing the right partner. Not all scheme operators are equal. Fee structures, vehicle selection, driver support and flexibility vary significantly. An independent review of what’s available is often worthwhile before committing.

Is it right for every business?

Not automatically. The saving is proportional to take-up, and take-up depends on how well the scheme is communicated and how attractive the employee proposition is. A scheme that’s poorly explained or hard to access will under-perform.

The businesses that see the best results are those that treat it as an employee benefit worth investing in — with proper education, clear communication, and support for employees who are unfamiliar with EVs or unsure about the switch.
That’s precisely where we focus our work at Odigo Verve. We help businesses understand whether a scheme is right for them, design it correctly, and make sure their employees understand it well enough to participate with confidence.
If you’d like to understand what salary sacrifice could save your business, start a conversation with us. There’s no obligation and no sales pitch — just a clear-eyed look at the numbers.