The Unfinished Business of Salary Sacrifice

By Thom Groot, CEO of The Electric Car Scheme

Salary sacrifice is one of the quieter success stories in UK employee benefits. The value of it is immediate and instantly noticeable, unlike many other workplace perks. Employees gain access to whatever it is that they want at a much lower personal cost, whilst employers can offer it without creating a direct financial burden. This alignment explains why it is such a resilient employee benefit.

Salary sacrifice should work for all the three parties who are involved. The employee, the employer and the government. The reformation of Optional Remuneration Arrangements by the government in 2017 led to the removal of tax advantages from most of the salary sacrifice schemes, preserving those schemes that are linked to other specific policy priorities, such as cycling to work or low-emission vehicles. The Cycle-to-work scheme has been running at a massive scale since 1999.

Yet, despite the theory remaining strong, many of the contracts that underpin the schemes have not always kept pace with the workforce they are designed to serve.  

Where salary sacrifice falls short

Historically, salary sacrifice has been built around assumptions which now feel very outdated. Some areas that stand out specifically are employee retention, stable household income, and life remaining predictable. 

The Probation Period

Probationary periods have also been known to exclude employees for their first three to twelve months. Obviously it’s intended as a safeguard for employers but it is becoming increasingly difficult to justify in a more mobile labour market. 

Contract Rigidity

Alongside this, contracts being too rigid and restrictive has meant that life events such as redundancy, sickness or maternity leave (just to name a few), have become even more stressful for employees. Typically, they can turn into a financial strain for both parties, leading to pricey exit fees.

The Office for National Statistics recorded 102,678 divorces in England and Wales in 2023, with Legal and General research showing divorcees typically see their income fall by 31% in the year following separation. Along with this, long-term sickness left around 2.82 million people economically inactive in early 2024, and UK redundancy rates climbed to 5.3 per 1,000 employees by late 2025. 

For those employees stuck in this situation, their only option would be to sell at a loss, pay the huge costs, or face early termination fees. None of these outcomes would benefit the employer either as their employees would likely discuss this with HR or wellbeing teams or disengage with their job. 

Product Scope

Product Scope has also been too narrow. Electric Vehicle salary sacrifice was largely designed around new vehicles, even as the used electric vehicle market has expanded rapidly and become the more realistic route for many households. These limitations were not flaws previously as they did reflect the market at the time. However as markets change, the benefits for employees also need to change with them. 

SMMT figures show that used battery electric transactions rose 45.7% to 274,815 units in 2025, a record surge. 

Some employers are completely scrapping probationary periods altogether, so employees are free to access everything from day one. Another modification that some companies are introducing is stronger protection for employees who are facing major life events. Second-hand electric vehicles, as well as hybrids, are also being brought into scope, making the benefit accessible to a wider range of employees. 

How it impacts HR

This is hugely important to HR teams. This would be the chance for HR to push providers to create terms that work for a full spectrum of employees rather than just using the most predictable perks. 

The next stage of salary sacrifice is not about inventing new categories of benefit. It is about improving the resilience and flexibility of the schemes already in place.