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Economic and sustainability objectives are being met by WSP UK following its decision to introduce a salary sacrifice scheme in place of a traditional company car fleet.

A total of 113 cars have so far either been delivered or ordered to-date under the scheme - known as WSP Advantage - making it already one of the largest company car salary sacrifice schemes so far implemented.

Ultimately, Venson Automotive Solutions, which won a competitive tender to deliver the programme, could deliver up to around 850 cars to WSP employees as they opt into the scheme after giving up either their current company car or cash in lieu of a car.

After a two-year period to August 2010 when the business put company car replacement on hold, the vast majority of staff are opting into WSP Advantage when the lease on their current vehicle expires.

Also, the popularity of WSP Advantage has meant that some of the 400+ employees who had previously taken cash are now opting into the company car salary sacrifice initiative having previously turned their back on a company car.

Launching a company car salary scheme

Typically, employers introduce a salary sacrifice scheme as one of an increasingly long menu of staff benefits - and it is in addition to a traditional company car option.

However, WSP decided the ‘win wins’ delivered to both itself and employees from the initiative would mean the end of its own traditionally run company car fleet.

Key reasons behind WSP launching its salary sacrifice scheme were to drive down the carbon footprint of both the business and its employees and encourage them to reduce their mileage.

The scheme means that employees are fully focused on how much it costs to run a car. As a result they are in the main selecting models that are far less polluting than the company car they previously drove, with better fuel consumption, smaller engines and lower carbon emissions. Additionally, as employees select the mileage element within the contracted period they conduct their own journey management.

Car fleet manager Dennis Dugen said: “The scheme is helping WSP achieve economic and sustainability objectives as the funding structure encourages employees to choose low emission cars and cut their mileages. Simultaneously we are also encouraging employees to ‘smart’ work, work from home and use video conferencing to reduce their business mileage.

“As well as delivering financial benefits to the company and employees, WSP Advantage is also benefiting the environment as vehicle emissions are reducing alongside mileage as employees are thinking how necessary both business and private journeys are before making them.”

WSP Group is a global design engineering and management consultancy specialising in property, transport and infrastructure, industry and environment projects.

Established in the UK in the 1970s and listed on the London Stock Exchange since 1987, WSP started its business partnership with Venson in March 2006 with the introduction of a dual supply contract hire arrangement for its then fleet of 650 company cars.

However, when the global economic recession struck in 2008 the business put company car replacement on hold until August 2010.

Mr Dugen said: “During those two years the size of the car fleet was reducing. Surplus cars which had been used by employees who had left the business in the two years the company car scheme was on hold were reassigned to avoid early contract termination charges.

“While that was quite successful, the company was concerned as to how sustainable such a model would be in the long-term. The company wanted to introduce a car scheme that in the event of an employee leaving the business it would not be liable for the vehicle.”

The business already offered cash in lieu of a company car but, said Mr Dugen: “Company cars are a highly valued benefit by WSP employees and in the business sectors in which we operate. Therefore, there was a fear that to only offer a cash alternative would impact on employee recruitment and retention.”

Tasked with finding a suitable solution, salary sacrifice proved to be the choice after a range of options were analysed.

How salary sacrifice works at WSP

The scheme was launched in July 2010 and by the end of January 2011 a total of 113 cars had been supplied to WSP by Venson.

WSP Advantage - Venson’s salary sacrifice product is called Venson Advantage - has been designed as a fully online solution.

Venson was already handling drivers’ selection process and ordering through its online Venson Interactive service when WSP’s previous contract hire company car policy was in place.

Mr Dugen said: “The fully automated, paperless process for drivers to obtain quotes, specify and order their cars had worked very well and we wanted that to continue with the introduction of the salary sacrifice scheme.”

When an employee goes on line they can obtain quotes for both the cost of a car on the three-year salary sacrifice scheme and for the cost via a three-year personal contract purchase scheme if they decide to opt to take the cash alternative.

WSP Advantage, which has been bespoked by Venson to meet the company’s criteria, has five key features:
• It is a contract hire with fixed price service and maintenance solution
• Employees have an open choice on vehicle selection, although there is an emissions cap at 160 g/km of CO2
• Built into the monthly rental is an early termination insurance fee or ‘liability insurance’
• Built-in comprehensive business insurance
• A no quibble tyre replacement policy

Company car salary sacrifice schemes are at their financially most attractive when substituting salary for a benefit that is taxed at a much lower rate, such as low emission company cars. Therefore, it is a mechanism for cutting WSP and its employees’ carbon footprint as the largest financial savings are on the most environmentally-friendly cars.

Employees fund their chosen vehicle through a fixed monthly allowance paid by WSP. Therefore the lower a vehicle’s emissions and the lower the contracted mileage, the more financially beneficial salary sacrifice is to employees.

A further requirement for WSP when opting to introduce salary sacrifice was the inclusion of ‘liability insurance’.

Mr Dugen explained: “Due to our experiences in having to re-assign cars during the recession we didn’t want to face the same issue if employees left and the company was left with a salary sacrifice vehicle.

“It was therefore important for the company that built into the monthly salary sacrifice sum deducted from employees’ salaries was a fee to cover early termination in the event of a member of staff leaving the company.”

As a result, WSP effectively self insures against that occurrence by including an early termination fee within the overall monthly cost of the car deducted from employees’ salary.

Selling the benefits of salary sacrifice: why the scheme is proving popular with employers and employees

Increases in income tax rates, April 2011 rises in National Insurance contributions and potential savings from running low emission company cars are the ingredients that are encouraging an increasing number of employers to look at launching salary sacrifice schemes.

The benefits include:
• Savings in NIC, which are paid on employee benefits-in-kind such as company cars at the rate of 12.8% rising to 13.8% on April 6, 2011
• A mechanism for cutting an organisation’s carbon footprint as, typically, the largest financial savings for both employers and employees are on low emission cars
• Improving corporate duty of care by encouraging company car scheme cash option employees and therefore staff who drive their own cars on business - the so-called ‘grey’ fleet - into company cars
• Adding another flexible option to employers’ existing portfolio of employee benefits.

Therefore with income tax rates rising and personal allowances being cut, employees can make tax savings by sacrificing salary in return for a benefit-in-kind. In the case of a company car this would see a basic rate taxpayer giving up salary currently taxed at 31% (income tax and NIC) and a higher rate taxpayer giving up salary taxed at 51% and selecting a car with emissions below 120 g/km paying tax on 10% of the P11d value (13% for a diesel car).

Although employees pay benefit-in-kind tax on their car arranged through WSP Advantage, because the scheme promotes lower polluting cars, this is more than offset by the tax and National Insurance savings.

While WSP Advantage is proving popular with employees, Mr Dugen admits that the concept was greeted with initial scepticism by them.

To ensure that all employees clearly understood the benefits of WSP Advantage, the company organised a series of nationwide road shows and virtual meetings. In addition there were regular communications to staff.

Mr Dugen said: “Once initial scepticism had been overcome and employees had done the calculations and realised they would be financially better off in a salary sacrifice scheme they have brought into it. Many employees did not realise how much company car benefit-in-kind tax they were paying and they are now saving money as a result of salary sacrifice.”

The typical WSP employee’s company car salary sacrifice contract is three years/36,000 miles. However, staff that travel more than 6,000 business miles a year do receive additional support from the company.

Employees have the ability to sacrifice all of the additional salary paid to them by WSP in place of their traditional company car; to only use some of it to fund a vehicle; or to add further cash from their own resources to secure the vehicle of their choice.

Mr Dugen said: “WSP Advantage has given the company the ability to encourage employees to choose low emission vehicles and to reduce total mileage and business mileage across the fleet.

“On economic and sustainability grounds our salary sacrifice scheme is fulfilling the objectives that WSP set out to achieve.”

Overcoming administration issues

The single downside identified by Mr Dugen as a result of introducing a salary sacrifice scheme is an increase in administration when tax changes occur. For example, the January 2010 rise in VAT impacted on salary sacrifice payments and therefore employees’ contracts needed to be resigned.

Similarly, forthcoming increases in National Insurance contributions as well as the April 2011 rise in Insurance Premium Tax will necessitate further contract updates.

Mr Dugen said: “Most of this is auto-populated by Venson but organisations need to be aware of the administration processes they need to go through and have the procedures in place to cope.”

Collaborative partnership ensures successful implementation

WSP introduced its salary sacrifice scheme at a time when there were very few providers with any track record in delivering such an initiative to a large number of employees in any single organisation.

Mr Dugen explained: “A number of leasing companies offered salary sacrifice schemes but it was Venson’s business ethos and fit with our culture that ultimately made the company our preferred choice.

“Venson was prepared to work with us. Implementation was a collaborative partnership and Venson adapted its own salary sacrifice product to meet our requirements.”

Additionally, Venson used David Rawlings, founder of Business Car Finance and a former automotive consultant at tax experts Deloitte, as an adviser to assist with implementation of WSP Advantage and to ensure that HM Revenue and Customs’ rules governing implementation of such schemes were met.

Mr Dugen said: “The expert support that was offered gave WSP comfort every step of the way during implementation. We are now very comfortable with the scheme, the way it works and that it is achieving the targets we set.”

The Venson view

Venson Automotive Solutions’ sales director Simon Staton said: “The major difference between WSP Advantage and other salary schemes is that WSP Management Services has decided to drop its traditional company car offering.

“We have enabled the company to achieve its aim of limiting its exposure to the early termination of vehicles, while also ensuring that all vehicles are insured for business use and the fleet’s carbon footprint is reduced.”

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