Lombard: Fundamentals of Salary Sacrifice need to be understood by fleets

Lombard Vehicle Management, the UK’s largest asset finance company are warning that fleets need to have a better appreciation of the fundamentals when it comes to salary sacrifice. Whist they may be flavour of the month a lack of understanding of what is involved in this type of scheme may spell problems for both employer and employee in the future, say experts at Lombard, one of the first providers to implement a sizeable scheme of this type.

“Salary sacrifice is the buzz term right now. This time last year almost no-one was talking about it but probably 50% of our major customers are now,” says Paulo Larkman, Head of Fleet Consultancy Services for Lombard, which signed its first major salary sacrifice customer over a year ago. “However, we have found that there is a lack of understanding about exactly what this method of funding is – how it differs from an ECO scheme for example.

“It’s important to realise that salary sacrifice schemes are fundamentally for the benefit of employees, and not to save money for the customer. They are part of an individual’s terms of employment and remuneration package, unlike an ECO scheme. That can bring problems if their technical delivery is not spot-on.

“For example, there have been quite a few instances where the vehicles available are not sufficiently attractive. Salary sacrifice schemes need to offer cars which people really want to drive, and which are perceived differently from the ‘job’ fleet cars. In addition, car choice is complicated by the fact that car manufacturers are not equally supportive of these schemes.

“There are also risks for the customer and employee. If an employee terminates the car early or leaves the company voluntarily, either the employee or the customer will be responsible for termination charges, and there are different ways of managing this such as the creation of a dedicated fund. Leasing companies therefore need to work primarily with HR departments rather than fleet managers, and provide a bespoke solution.”

Lombard has pioneered salary sacrifice schemes, securing a sole supplier deal early in 2009 with the University of Exeter to provide the vehicles for its employee fleet for an initial three-year period. The cars are being run on fully maintained contract hire over two and three-year terms. The car scheme is open to the majority of employees who undertake business mileage. Users can choose any make and model within the thresholds of 120g/km CO2 for diesels-engines and 135g/km for petrol engines.

Author: Amanda White, March 16, 2010
Filed under: Fleet news,Lombard Vehicle Management