What happens if an employee leaves during a car salary sacrifice agreement?
When an employee opts into a salary sacrifice car lease scheme, the employees’ terms of contract are changed to accommodate the scheme. In return, they get to choose from a range of vehicles that can be filtered to meet their individual needs.
But what happens if they decide the leave the business and end their employment? This is one of the most asked questions by employers who are looking to benefit from a salary sacrifice scheme. Let’s explore this scenario in more detail.
What do employers need to consider if an employee leaves during a vehicle salary sacrifice agreement?
An employee leaving whilst opted into a salary sacrifice car lease scheme can raise questions about the continuity of the arrangement. There will be implications for both the employer and the departing employee which will need to be considered.
Legal and contractual obligations
Because the employee does not own the vehicle, the responsibility for the car rests with the employer throughout the agreement. This means if an employee chooses to leave, there will be an obligation to return the vehicle to the relevant finance company.
This is referred to as an early termination, where a fee is payable to exit the agreement. If an employee leaves, their employer will need to organise for the vehicle to be returned. Contingencies can be put in place to make this process easier.
Communication strategies for informing employees
If your business chooses to offer a salary sacrifice car lease scheme, communicating with eligible employees is crucial. This is a great way to inform them of the benefits of salary sacrifice, but also the implications associated with ending an agreement early.
By encouraging staff to understand the salary sacrifice process, employees are more likely to consider if they can commit to a lease contract. Alternatively, they might consider a shorter lease, which will help reduce the likelihood of an early termination.
What are the potential scenarios of employee departure during a car salary sacrifice agreement?
There are several different scenarios where an employee might need to exit their salary sacrifice car lease. These include:
- Employee resignation
- Employee termination
- Redundancy
- Retirement
However, an employee doesn’t have to be leaving the business when considering the return of their salary sacrifice vehicle. They might have experienced the following:
- Loss of driving licence
- International secondment/transfer
- Long term sickness
What steps does my business need to take to manage the transition?
If you are concerned about employees leaving when they have opted for a salary sacrifice car, there are steps you can take to mitigate risks and manage the transition effectively. Here at Synergy, there are generally four provisions we can build into the setup of your salary sacrifice car lease scheme. These include:
- Introducing an early termination provision within your scheme and included in the monthly rental, which can help cover the cost if an employee leaves.
- Charge an admin fee to scheme users and save what it would have paid for national insurance contributions to build a contingency fund.
- Employee settles and pays the early termination fee.
- The car could be reallocated within the business, or novated to the new employer
Why choose Synergy as my salary sacrifice provider?
Synergy has been awarded the Feefo 10 Years of Excellence Award for a decade of best-in-class customer service and recognised as Broker of the Year 2024 in the Broker News Awards. Our dedicated team is on hand 7 days a week to help your business grow and reward your employees.
Our team will give you the freedom to set up a scheme that works for your company and its employees while providing guidance on how to deal with different situations. If you’re considering a salary sacrifice lease car scheme, get in touch with our dedicated team today.
