I am an employee, will I be tied to the business if I take a car on salary sacrifice?

When you take a car on salary sacrifice from your employer, you are agreeing to pay the car’s monthly rentals for the duration of the agreement. Usually this is over 24 or 36 months but can be 48 months.

Your employer has set up the salary sacrifice as a benefit to you. It enables you to drive an electric car at a much-reduced cost than if you were to lease the same car personally after post tax income.

So there is an implicit agreement here. Your employer wants to make your conditions of employment as good as possible because they want to retain the staff they have – and salary sacrifice is a good retention tool.

So if you decide to leave the business for whatever reason you can no longer retain usage of the car because your conditions of employment have changed.

Early termination of your agreement

Now, various scenarios can play out depending on the agreement between you and your employer.

If your employer has taken out salary sacrifice Early Termination Insurance, this should cover the payment of the remaining rentals on your car agreement.

In some other cases, the employer may be able to reallocate your car to another employee, in which case the employer will waive the remaining rentals on the agreement.

However, not all employers have Early Termination Insurance. In such instances, if the car is returned before the end of the agreement an early termination charge will be payable. This charge will then be recharged to you and will be taken either as a deduction from your salary, or, if you have already departed the business, by an invoice.

Conclusion

So does salary sacrifice tie you to the business? Yes, because it’s offered as a benefit of your employment. But if you do decide to leave, depending on the agreement you have, there may be nothing else for you to pay and you can leave, or there could be a termination charge to pay. Therefore, before entering a salary sacrifice agreement, make sure you do understand the terms in case you do decide to leave your company’s employment and what costs you might be liable for.