Multi-bid tendering is the secret to making salary sacrifice deliver the savings

Multi-bid tendering is the secret to making salary sacrifice deliver the savings

Posted by

Robert Wentworth-James

April 2022

The drivers behind companies wishing to offer their employees a salary sacrifice car are many and often complex.

However, the key points remain the desire to improve the company’s Environmental, Social and Governance (ESG) position, the opportunity to reduce costs thanks to the benefit in kind advantages afforded by zero-emission electric cars, along with the offer of a strong recruitment and employee retention tool.

However, with certain salary sacrifice schemes, not all savings are fully realised. And neither is the conversion rate as high as expected, reducing the potential attractiveness of the scheme and the successful outcomes.

Let me explain why.

Salary sacrifice has traditionally been offered to corporates as a sole supply leasing solution: by that I mean one leasing provider offering a salary sacrifice solution to business employees. This means you get only one perspective on what the lease rental should be… a highly disadvantageous position with the electric vehicle (EV) market still in its relative infancy.

We have for example seen the difference between leasing company quotes on salary sacrifice that can vary by £100 to £200 per month. A very big sum if you’re on the wrong side of how a leasing company views the lease cost of the vehicle you’ve chosen.

With the lack of any competitive tender on lease rental rates, sometimes the employer rolls up its own National Insurance savings into a lower lease rental for the employee. Nothing wrong with that, of course. Except that the employee then needs to pay for expensive lifestyle insurance cover to ensure protection for events such as resignation, redundancy, retirement and long term illness.

Which is where these schemes foundered in terms of relative take up and attractiveness. Take up is often only in the region of 8% to 10% which in turn means that major players in the ‘salsac’ market restrict offering their schemes to those organisations with at least 1000 employees to make it worthwhile setting up.

So should salary sacrifice only be restricted to large enterprises?

We don’t think so.

The Fleet Alliance salary sacrifice scheme is aimed at businesses with fewer than 1,000 employees and takes a fundamentally different approach with more positive outcomes as a consequence.

First of all – and the most important aspect – is this: multi-bid tendering. It’s the absolute number one reason why your business will save money on salary sacrifice.

With sole supply status, you only ever receive the funder’s price on that vehicle. And depending on their view on the vehicle and its resale value, or simply down to ‘price creep’ because they are the unchallenged incumbent, the rental can be up to £200 a month more expensive than the exact same vehicle from another funder, especially with regard to how EV lease costs are calculated.

Multi-bid tendering overcomes this.

We put the vehicle out to ‘tender’ with a panel of the most competitive funders and the ‘best price on the day’ wins the contract.

Such a process establishes the most competitive rate on the market and ensures the most advantageous contract hire rental inside the salary sacrifice agreement.

Multi-bid tendering reduces employee lease costs for salary sacrifice by roughly 7% to 15%. This cost competitiveness also means we see a greater conversion rate on our salary sacrifice schemes, varying between 12% to 17% take-up – whatever the size of your business.

And rather than requiring an employee to take an expensive lifestyle insurance, we take a more proactive and analytical view of how to protect against early termination, one that ensures the employee and employer are both protected, while ensuring the employee is still advantaged by an attractive rental.

Ready to get started? Visit our salary sacrifice car scheme page here.

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