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Written by Rob Buckland

Whether you’re offering a to your employers, or you’re an employee looking to join one, it’s a great benefit. Those in the scheme get access to the latest electric cars and can save up to 40% compared to personal leasing. 

Employees agree to give up a portion of their gross salary to get access to an EV on the scheme, reducing the amount of tax and National Insurance they need to pay. But how does that work for employees with a variable income? Our guide explains all.

What is Variable Pay?

Variable pay essentially means that the amount you earn fluctuates every month. Most commonly this is because you’ve worked overtime on top of your contracted hours, but it also includes jobs where you’re awarded commission and bonuses on top of a salary. 

For example, sales managers in a customer-focused business may be awarded bonuses for hitting certain sales targets. This can be a specific amount or as a percentage of their salary. Another example includes employees being asked to work overtime in a particular month to complete a project.

Can Employees on Variable Pay Use a Salary Sacrifice Scheme? 

Yes, employees on variable pay can usually be part of a salary sacrifice scheme, as long as they meet certain criteria to be able to afford the payments. 

It’s important to recognise that an employee’s earnings must remain over the National Minimum Wage for the hours that they work - including the salary sacrifice payments. Salary sacrifice is only viable for an employee whose pay consistently stays above this threshold - for example even in those months where they don’t receive a bonus or commission.

How Does Salary Sacrifice Work With Variable Monthly Pay?

In essence, a salary sacrifice scheme works no differently whether you’re on a fixed or variable income. Every month an agreed amount will be sacrificed from your pre-tax earnings to pay for the car, and you’ll then be taxed on the total annual salary minus those payments. 

It’s worth getting your head around Benefit-in-Kind tax, too. Also known as , this must be paid as a salary sacrifice car is seen as a company benefit. For electric cars this is calculated as a percentage of the car’s list price (or P11D value), while also taking into account your tax bracket. 

The Benefit in Kind rate for electric cars is fixed at 2% until 2025 - this is much lower than for a petrol or diesel car. However, after 2025 it’ll increase by 1% each year until 2028. Bear in mind that government decisions may change this in time. 

This is simple so long as your income doesn’t vary so much as to move you into different tax brackets month by month. Then it’s more complex, because while National Insurance contributions are worked out on a monthly basis, Income Tax is based on your earnings across the whole tax year. If your tax band changes, it reflects what you’d fall into if your income continued at that level for the rest of the year. 

Payments for both Income Tax and National Insurance could vary considerably as a result - from basic rate to higher rate, for example. However the employee will receive an Income Tax rebate if their overall income over that tax year puts them in a lower tax band. 

We’ll give you a simple example of how an employee receiving a large bonus will be taxed, and how a salary sacrifice scheme reduces that tax:

Say an employee earns £42,000 a year on their basic salary but gets £15,000 in commission from sales. They would have to pay Income Tax and National insurance on that commission, so their Income Tax would be as follows: 

However, by opting for a salary sacrifice electric car with payments of £7,000 a year, this brings the annual salary (the figure they pay tax on) down to £50,000. Their income tax would now be as follows:

Is a Salary Sacrifice Scheme Worth it for Employees on Variable Pay?

Overall, we’d say it’s still worth getting on board with a salary sacrifice scheme if you earn variable pay, so long as you can afford the payments and still earn above the National Minimum Wage in terms of basic salary. 

You’ll save money on fuel, running costs and maintenance, plus reduce your tax burden, all the while driving around a smart and high-tech new electric car with zero hassle. What’s more, you’ll be doing your bit for the environment by reducing both local pollution and greenhouse gases. For more information or to check out your option, click to view our . 

You can also see the available cars on our car leasing page, find out how much an EV costs through salary sacrifice, examine and look at the .