Setting up a salary sacrifice scheme to help meet the cost of commuting is a popular and cost-effective way of boosting staff’s spending power. Nic Paton looks at some of the options

transport

Tumbling oil prices may be making the cost of commuting by car slightly more bearable, but for most workers the daily commute is a significant, and unwelcome, chunk out of their salary every month.

UK rail commuters spend some 14% of their monthly salary on their rail season tickets, according to the TUC and rail union Action for Rail, and that was before taking into account this year’s above-inflation increases in rail fares.

The cost of parking your car en route or while at work is only going in one direction too. The TSSA rail union recently found that it can cost up to an eye-watering £215 a day to park at some railway stations.

Against this backdrop it’s not hard to see why, in an environment where the cash for pay rises remains tight, being able to help employees with their transport costs through salary sacrifice-based schemes is becoming an increasingly attractive option for many employers.

As Sarah Davis, marketing manager at employee benefits provider Wider Plan, explains: “Over the past few years transport costs have increased faster than salaries. People used not to realise you could use salary sacrifice in this way but it is often a really straightforward process.”

There are three core transport-related areas where employers can help through offering salary sacrifice-based schemes: cycle-to-work, parking and company cars. Loans for public transport season tickets are another key benefit often bundled into this mix but, as yet, can’t be offered through salary sacrifice.

CYCLE TO WORK

The London 2012 Olympics increased an enthusiasm for sport overall, but it was the British cycling team that really captured the nation’s interest with a series of high-profile wins.

The team’s success encouraged more people back on to their bikes, and employers quickly picked up on this trend as a way of helping employees commute more cheaply.

“Your employees can save on the cost of a new bike, as well as on security and safety equipment, and pay less tax and National Insurance”, says Domonique Lippett, marketing manager at provider Halfords Cycle2Work.

It’s not just a financial benefit for staff – employers are showing recognition of the health benefits of exercise by encouraging their staff to get on their bikes, as well as helping to fulfil any green agenda the organisation might aspire to.

CAR PARKING

In years gone by it used to be that free or heavily subsidised parking at or near work was one of the perks of the job, especially in the public sector. “But increasingly employers have had to introduce parking charges, so being able to offset this through salary sacrifice is becoming more popular,” explains Davis.

“So, if you park in a car park and it costs, say, £650 a year for a permit, we can normally negotiate a discount from the operator – let’s say to £600,” she says.

“The employer purchases the permit from the car park operator and the employee pays for it over 12 months via salary sacrifice. The employee makes National Insurance and tax savings and the employer makes NI savings.”

COMPANY CAR SCHEMES

According to the Society of Motor Manufacturers and Traders, the new car market grew by 12% in February, marking three straight years of growth. And, according to David Raistrick, UK automotive leader at Deloitte, at least part of this growth can be put down to the popularity of salary sacrifice-based company car schemes.

He said at the time that these were “one of the primary growth areas in the fleet sector”, with “ever-increasing numbers of employees opting to take a new vehicle rather than purchasing a replacement car from the used car market”.

Yet research by provider Lex Autolease last year suggested that there is still a lack of awareness of the strategy, with two thirds of company car drivers admitting to not fully understanding such schemes.

While this is, clearly, at one level a barrier to growth, it is also arguably an opportunity for employers to be getting out there and selling the message, says Lex senior manager, fleet consultancy, Andrew Hogsden.

“Businesses still need to do more to educate employees about the breadth of rewards and benefits available to them.

“Positive marketing of salary sacrifice arrangements… will go a long way to removing the barriers preventing employees from reaping the benefits of salary sacrifice schemes, and employers from harnessing them as a recruitment and retention tool,” he explains.

The benefit-in-kind savings on car salary sacrifice schemes are tapered around emissions, meaning that you achieve the greatest savings on lower CO2-emitting vehicles. This, in turn, means a scheme can be linked to a ‘green’, or environmental message.

The Corporate Manslaughter and Corporate Homicide Act 2007 has also meant employers have become more aware of the dangers of operating a ‘grey fleet’, or where employees use their own cars, versus the benefits of knowing people are driving in properly insured, serviced and maintained vehicles.

The key when venturing into this area is to go in with eyes fully open, advises Stuart Cunningham, head of international corporate sales at provider Alphabet, both in terms of recognising the benefits and risks to you as the employer, but also communicating the same message to your employees.

“There are plenty of roses about car salary sacrifice, but it is important to recognise it is not a complete bed of them.

“There can be risks, especially around issues such as scheme leavers or early termination, or people going off on maternity or paternity leave,” he points out. “The best way to mitigate these risks is by adding insurances or amounts on to the payment. So it is just about being conscious of those areas,” he adds.

On way to mitigate the risk of leavers or terminations is through so-called “novated” leasing, pioneered in the UK by provider SG Fleet. Under this model, the responsibility for the lease lies with the employee rather than the employer, meaning if the employee leaves they remain responsible for any outstanding payments.

For the employee, Cunningham emphasises, it’s a case of ensuring they fully understand what they are committing to, in other words potentially a large chunk of money coming out of their salary every month for a number of years. It is also, of course, vital they are not, as a result, falling below the national minimum wage.

“Having said all that, company car salary sacrifice remains a very popular benefit. It enables an employer to replace salary with an efficient car while saving on employee NICs. For the employee it is about getting access to a modern, low-emitting vehicle at a corporate discount, fully maintained, with a 40% or 20% discount, depending on their tax situation,” he adds.

Alison Argall, business development director at provider Tusker, agrees. “We’re definitely seeing more appetite, with growth in the private sector, now that confidence is returning,” she says, pointing out it put in 58 new schemes last year, compared with 35 the year before.

“I do think this market will continue to grow. But I also think we’ll see employers taking a more holistic approach.

“Typically, once people realise the great engagement and feedback they can get from employees around this, they start to look at what else they can tag on. It is simply about adding value at low cost.”

THE HOLISTIC APPROACH

Argall’s comment about employers increasingly looking at transport salary sacrifice in the round is an important one.

So it could be ensuring there are clear marketing, brand or promotional links between your transport salary sacrifice-based schemes and any season ticket loans you also offer. Or making clearer links between your transport and other reward, loyalty or affinity benefits, whether salary sacrifice-based or not.

As Mark Carman, director of communication services at employee benefits consultancy Edenred, highlights: “Historically flex schemes have been all about the ‘risk benefits’, so things like healthcare, dental cash plans and so on.

But when you think about things like bikes, cars, parking, commuting, computers, mobiles, childcare vouchers and so on you can really develop an umbrella approach. You can be saying to people, ‘look, we can offer really good discounts on a whole range of areas’.

“It all helps to engage employees with your benefits scheme and to drive awareness, and then draw them into other more core benefits areas, such as the pension scheme,” he concludes.