If you’re an employer looking to offer your team a genuinely useful benefit without adding cost to the business, an electric car salary sacrifice scheme is one of the most straightforward options available. The setup process is simpler than most people expect, but there are a few things you’ll need to get right before you launch.
This guide will walk you through each step so you can get your salary sacrifice scheme up and running with confidence.
What Is a Salary Sacrifice Scheme?
Before getting into the setup, it’s worth covering the basics. A salary sacrifice scheme lets employees give up a portion of their gross (pre-tax) salary in exchange for a non-cash benefit. In this case, that benefit is a car (new or used), typically bundled with insurance, servicing, road tax and breakdown cover.
Because the salary reduction happens before income tax and National Insurance are calculated, employees pay less tax overall. For a higher-rate taxpayer, that can mean savings of 40% or more compared to leasing a car privately. Employers benefit too, because they’ll pay less in National Insurance contributions on the reduced salary. The whole arrangement is HMRC-approved.
Step 1: Check Your Eligibility and Internal Requirements
Not every business can offer salary sacrifice straight away. There are a few things you’ll need to confirm first.
Your employees’ salaries cannot fall below the relevant National Minimum Wage rate for their age group after the sacrifice amount is deducted. For workers aged 21 and over, the applicable rate is the National Living Wage, which rises to £12.71 per hour from April 2026.
For younger employees, lower National Minimum Wage thresholds apply. So if you employ staff on lower salaries, you will need to check whether they would still meet the correct threshold after the deduction.
You’ll also need to decide whether the scheme will be open to all employees or limited to certain groups. Most employers open it up to everyone, but some set minimum employment periods (for example, six months) before staff can apply. It’s worth discussing this with your HR and finance teams early on.
Step 2: Pick the Right Salary Sacrifice Provider
This is the decision that will have the biggest impact on how smooth the whole process runs. Some providers manage everything from vehicle sourcing and insurance to payroll integration and employee support. Others leave more of the admin to you.
When comparing providers, look at a few things:
- Vehicle range. Can employees choose from a wide selection of new and used EVs, or are they limited to a handful of models?
- What’s included in the monthly cost? The best schemes bundle insurance, servicing, road tax and breakdown cover into one payment, so employees don’t face surprise bills.
- Consider employer protection. If an employee leaves the business mid-contract, you don’t want to be left covering the remaining lease payments. EZOO’s scheme has a built-in early termination protection to cover this scenario.
- It’s also worth asking about admin. Some providers manage the entire onboarding process and provide a dedicated portal for employees to browse vehicles and place orders. They’ll also handle the payroll adjustments on your behalf. That saves your HR team a significant amount of time.
Step 3: Draft the Salary Sacrifice Agreement
Once you’ve chosen a provider, you’ll need a formal salary sacrifice agreement. This is the legal document that records the employee’s decision to reduce their gross salary in exchange for the car benefit.
The agreement should clearly state:
- The amount being sacrificed each month
- The duration of the arrangement (usually two to four years)
- What happens if the employee leaves, goes on long-term sick leave or takes maternity or paternity leave.
Your provider will typically supply a template for this, but it’s a good idea to have your legal or HR team review it before rolling it out.
One point that catches some employers off guard: salary sacrifice arrangements can affect other benefits linked to salary, such as pension contributions, life insurance cover and mortgage affordability assessments. You’ll want to make sure employees understand this before they sign up. A clear internal communications plan will help here, and we’ll cover that in a moment.
Step 4: Update Your Payroll
With the agreement in place, your payroll team will need to adjust the employee’s gross salary each month. The sacrifice amount is deducted before tax and National Insurance are calculated, which is where the savings come from.
You’ll also need to account for the BiK charge. For electric cars, this is reported to HMRC via the P11D form or through payrolling benefits. Most modern payroll software handles this automatically, but it’s worth flagging with whoever manages your payroll so they can set it up correctly from day one.
If you’re unsure about how BiK works for EVs, we have a helpful guide that explains what Benefit-in-Kind means in plain terms.
Step 5: Communicate the Scheme to Your Team
A salary sacrifice scheme only works if people actually use it. And uptake depends almost entirely on how well you explain it.
Don’t bury the launch in a company newsletter. Instead, consider running a short presentation or Q&A session where employees can ask questions. Cover the basics:
- How much they could save
- What cars are available
- What’s included in the monthly cost
- What happens if they leave.
Real examples make a big difference. Showing an employee on a £45,000 salary exactly how much they’d pay per month for a specific car is far more persuasive than quoting abstract percentages.
Our recent blog post on how to explain salary sacrifice to employees has some practical tips for getting this right. Some providers will even run launch events or virtual sessions on your behalf, which takes the pressure off your HR team.
What About Employer Costs?
Here’s the part that surprises most business owners. A well-structured EV salary sacrifice scheme is cost-neutral for the employer. There’s no setup fee, no ongoing management cost and no financial exposure if an employee opts in.
In fact, you’ll likely save money. Because the employee’s gross salary is reduced, you’ll pay less in employer’s National Insurance contributions on that portion. With employer’s NI currently at 15% (from April 2025), those savings add up quickly if several employees join the scheme.
There’s no minimum number of employees required to get started, either. Whether you have five staff or five hundred, the scheme works the same way.
A Benefit Worth Offering
Setting up a salary sacrifice scheme for electric cars takes less effort than most employers expect, especially when you work with a provider that handles the heavy lifting. Your employees get access to a brand-new EV at a fraction of the usual cost, and your business benefits from NI savings and a genuinely attractive perk that helps with recruitment and retention.
If you’re considering setting up a scheme for your team, get in touch with us to find out how quickly you could be up and running. Or if you’d like to understand the full picture first, download the employer explainer for a detailed breakdown.
EZOO is not a tax adviser. Always seek independent financial advice on your specific tax position before entering into a salary sacrifice arrangement.