What are the Disadvantages of Salary Sacrifice Car Schemes?

While the advantages are widely advertised, it's essential to weigh the disadvantages of salary sacrifice car schemes for both employees and employers. 

Let’s explore when a salary sacrifice scheme might not be the best option for you. 

Disadvantages of Salary Sacrifice for Employees

Salary Reduction Can Impact Finances
Joining a salary sacrifice scheme reduces your gross salary. While you save on tax and National Insurance, it can affect mortgage or credit applications, workplace pension contributions, and benefits like life insurance or statutory maternity pay. If your salary falls close to or below the minimum wage, you won’t be eligible.

Lack of Flexibility
Once you join a scheme, it’s hard to exit early or change your agreement without penalties. This lack of flexibility may not suit those who want more control over their car or finances.

Restricted Mileage
Most schemes set an annual mileage limit, typically 5,000–10,000 miles. Exceeding this can incur additional costs, and adjusting mid-contract can be difficult, which may be inconvenient for employees with long or unpredictable commutes.

Not Ideal for Lower Incomes
Lower-income employees may find salary sacrifice financially challenging, especially when balancing rent, loans, or other expenses. Employers cannot allow participation if it would take earnings below the legal minimum wage.

No Option to Own the Car
Most salary sacrifice schemes are lease-based, meaning you return the car at the end of the contract. If ownership is important, buying or financing a vehicle may be better.

Why Avoid Salary Sacrifice for Petrol or Diesel Cars
Petrol and diesel vehicles have higher Benefit-in-Kind tax (up to 37%), higher running costs, and face additional charges in low-emission zones like ULEZ or CAZ, making salary sacrifice less attractive compared to EVs.

Disadvantages of Salary Sacrifice for Employers

Financial Risk When Employees Leave
If an employee exits mid-contract, the employer may be responsible for remaining payments or an early termination fee. Early Termination Protection (ETP) can help cover risks such as resignation, long-term sickness, or medical loss of license.

Maternity, Paternity, and Adoption Leave
During statutory leave, employers must continue providing the car since salary cannot be deducted from statutory pay, adding extra cost.

Administrative Burden
Managing a salary sacrifice scheme requires admin for mileage tracking, contracts, and terminations. At Rivervale, we offer full administrative support to reduce this workload.annot be deducted from statutory pay, the employer must cover the car’s cost during this period. 

3. Administrative Burden 

Managing a salary sacrifice scheme can require considerable admin. Employers without dedicated fleet teams may struggle with tasks like mileage monitoring, contract management, and handling early terminations. 

At Rivervale, we provide full administrative support to lighten the load.  

When is Salary Sacrifice not worth it? 

To recap, salary sacrifice car schemes may not be worth it if: 

You are on a lower income, as the salary deduction could affect your financial stability. 

You plan to purchase the car at the end of the lease. 

You require flexibility and don’t want to be tied to a contract. 

Your annual mileage is unpredictable or exceeds the agreed cap. 

You prefer petrol or diesel cars, as the tax savings are far less compared to EVs. 

Is a Salary Sacrifice Car Scheme right for you? 

While salary sacrifice car schemes offer fantastic benefits, particularly for electric cars, they’re not the perfect fit for everyone. Employees and employers alike must carefully weigh the disadvantages against the advantages. 

If you’re ready to explore the best salary sacrifice options for your needs, we can help streamline the process and eliminate the guesswork.