Green salary sacrifice schemes
When seeking to contribute to your organisation's Carbon Net Zero targets and transition to alternatively fuelled vehicles, the focus is typically on operational vehicles. One area that is often neglected is vehicles that are employee-owned but driven for some business miles. Martina Corrin from the Crown Commercial Service examines how to tackle the grey fleet dilemma
After just a week of the initial UK-wide lockdown, road usage was around 25% of what it would normally have been at that point in the year. Since then, the largest decrease in use remains in passenger cars, but commercial fleets are also far from the levels at which they began the year.
As a result, many operational fleets have been forced to review their fleet profile. In response to declining demand and an increasing desire to get the most out of every pound, some will have decided to reduce their vehicle numbers or switch to a new, blended approach; from operational vehicles assigned to individual drivers, to a centrally managed pool of vehicles accessed ad hoc by employees.
However, when lockdown restrictions ease, it’s inevitable that the UK will start to return to the road. For employees, the temptation to use their personal car will be high. It will be easily available, and may even feel like the safer option. But an increase in the usage of grey fleet poses several potential risks to the fleet manager.
Grey fleet risks - health and safety
More than one billion miles are incurred each year by the public sector in employee-owned vehicles.
Grey fleet cannot be directly and consistently managed as part of the overall fleet, and often exposes businesses to safety and legal risks. Under health and safety law, employers have the same duty of care obligations when their staff use personal vehicles for business as they do when using a vehicle provided by the organisation.
While fleet vehicles are covered by an organisation’s service and maintenance routines and regular safety checks, grey fleet drivers often admit to not regularly checking things like tyre tread and pressure, oil levels, and vehicle lights, giving rise to safety risks.
Businesses have a continued duty of care to their staff who are driving for business, whether in a fleet vehicle or their own. The scope runs from vehicle condition, adequate insurance provision, driver qualification and suitability, as well as other localised policies.
Failure to exert the appropriate control measures for grey fleet can have widespread damage from reputational, financial and legal responsibilities extending under the Corporate Manslaughter legislation.
Employers need to ensure that their actions, or inactions, do not “cause or permit” offences under the Road Traffic Act and demonstrate they have taken all reasonable steps to ensure that the vehicle is roadworthy and suitable for use. Organisations also need to be able to evidence they have checked that an employee’s vehicle is appropriately insured to cover business usage and that the driver is suitably licensed and skilled to drive for business.
At the same time, the average grey fleet vehicle is estimated to be 8 years old. A fair correlation can be drawn between these vehicles being older and having higher CO2 levels, and therefore releasing more harmful pollutants into our environment.
This harmful impact has to be considered within an organisation’s carbon footprint, hampering its ability to become net zero.
Standard internal combustion engines will also incur extra costs for the business through clean air zone charging, which discourages high polluting vehicles in urban areas.
A simple solution
A vehicle salary sacrifice scheme is a tried and tested tool which can be used to tackle the grey fleet dilemma. Employers are realising the many benefits such a scheme can bring to both their organisation and to their employees.
A salary sacrifice scheme can mitigate many of the risks associated with grey fleet and support environmental policies through the uptake of low emissions vehicles.
When an organisation sets up a vehicle salary sacrifice scheme, employees who choose to join it acquire a brand new leased vehicle.
The lease includes fully comprehensive insurance, vehicle servicing and maintenance, road fund licence and breakdown cover. The cost of the lease is deducted from the employee's salary before it is paid. If an employee then uses the vehicle for business purposes, the risks associated with a poorly maintained and possibly unroadworthy vehicle are immediately reduced.
To go greener, an organisation can also specify which vehicles are to be available in the scheme. For example, it could be set up so that only Ultra Low Emissions vehicles (ULEV) are available. For electric or plug-in hybrid vehicles, salary sacrifice scheme providers can source home-charging equipment and build the right solutions into the lease package for the individual.
Realising the full benefit of a scheme depends upon careful vehicle selection - so vehicle choice is key. Lower Benefit in Kind (BiK) taxation for ULEVs, which emit less CO2 and are more environmentally friendly than petrol or diesel vehicles, will support both your organisation and your employees to reduce your carbon footprint and your impact on the environment.
Salary sacrifice scheme providers can advise on vehicle choice and achieving optimum results in terms of cost and environmental objectives. They can implement and manage a scheme and support with marketing a scheme if required. Most will provide an online portal where employees can browse the range of vehicles included in the scheme and customer organisations can specify the level of support and service they require from their chosen scheme provider.
Value to employers and employees
The 2021 Budget has reiterated the importance of sustainable solutions for the UK, and confirmed the Government’s commitment to green growth.
Tax changes that were introduced in April 2020 made electric vehicles extremely attractive for both employers and employees, especially when they are leased through a salary sacrifice scheme.
The tipping point was the introduction of zero percent BiK for ULEVs in 2020/21, alongside a new 6% BiK rate for hybrid cars capable of travelling between 40 and 69 miles on a single electric charge.
Low tax rates remain favourable heading into 2021/22 and for several years ahead. Home-based vehicle charging solutions included in a scheme also benefit from these low ‘benefits in kind’ taxation rates.
An added benefit is that, as it’s the organisation who is contracting for the scheme and effectively acting as guarantor, there are no credit checks required for individual employees. Employers can also build in buffers to protect themselves from costs - such as early termination fees and long-term absence of scheme members.
Encouraging the uptake of ULEVs improves an organisation’s green credentials and, when these vehicles are used for business purposes, can support compliance with environmental policy requirements and emissions targets. ULEVs will support your organisation to meet its Carbon Net Zero target whilst continuing to deliver operational requirements.
Let us power your fleet
If you want to enjoy the benefits of a green salary sacrifice scheme, we have a wide range of suppliers who can support your requirements.
They bring a wealth of experience and are able to advise you on setting the right policy, vehicle selection, promoting uptake amongst your staff and can also support with administering a scheme on an ongoing basis.
To learn more, take a look at our short salary sacrifice scheme benefits guide.
For more information, contact the CCS' team of fleet category experts.
Martina Corrin is Vehicle Lease & Fleet Management Category Manager at Crown Commercial Service (CCS)