Leaving a salary sacrifice car scheme early: the options

What happens to a salary sacrifice car when an employee leaves, who pays the Early Termination Charge, and how employers can avoid it.

Salary sacrifice has made electric cars affordable for many employees. When someone leaves partway through, though, the employer can be left with a car and a bill. Here's how it works and how to limit the cost.

What happens when an employee leaves

On most schemes, the employee gives up part of their salary in return for the car. The lease is held by the employer or the scheme provider. When the employee leaves, the salary deductions stop, but the lease doesn't. Unless something else is arranged, the car goes back and an Early Termination Charge becomes due.

How big the charge can be

Charges vary by scheme. Some charge a percentage of the remaining rentals, often around half; others work it out from the remaining rentals less the car's value. On a car with two or three years left, that can run to thousands of pounds.

Who pays

That depends on the scheme agreement and any protection in place:

• Many schemes include or offer early termination protection, which covers common situations such as resignation, redundancy, long-term sickness or death in service
• Protection often has exclusions, for example in the first few months, during probation, or when large numbers are made redundant
• Without protection, the cost usually falls on the employer. Some employers pass part of it to the leaver under the employee's agreement.
• Excess mileage and damage charges usually apply whatever the cover

Ways to avoid the charge

• Pass the car to a colleague. Many schemes let another employee take over the car, subject to approval and checks.
• Ask about a transfer outside the business. Some agreements can be moved to another lessee with the provider's consent, but it's never guaranteed.
• Check the protection before you need it. Know your scheme's exclusions and waiting periods.

For employers setting up a scheme

• Read the early termination terms as closely as the monthly price
• Compare protection packages, especially the exclusions
• Decide upfront how you'll handle a leaver's car, and put it in the employee agreement

This guide is general information, not legal, tax or financial advice. Scheme terms vary widely: always check your own agreement and protection cover.