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Early Termination Protection for Salary Sacrifice Car Scheme: How It Works And What You Need to Know

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One of the most common questions we get from companies when they want to implement an electric vehicle salary sacrifice scheme is: what happens if the lease has to be terminated early?

Specifically, what happens if:

  • The company enters a period of financial uncertainty and has to lay off employees?
  • An employee resigns?
  • An employee goes on parental leave or gets sick?

As a company, the last thing you want is to end up with expensive liabilities and being tied into a contract you no longer want to be part of – so it’s no wonder that early termination protection is so important.

The good news is that with loveelectric and certain electric car schemes, both employees and employers can choose to access early termination protection in case an employee resigns or is made redundant.

In this article, we’ll explain:

Note: Looking to get started with a salary sacrifice scheme? Get started with loveelectric for free

What is early termination protection and why is it important to have 

Early termination is when the car is returned to the leasing company before the end of the lease term for any reason.

Early termination can happen for various reasons, such as accepting a job offer from another company, taking sick leave or parental leave. Sometimes, an employer may terminate an employee's services early due to an accident, misconduct, or redundancy.

Regardless of the reason, early termination can be expensive. Why? Because a car lease agreement usually lasts 2, 3 or 4 years – and ending it early means breaking a contract which can incur penalties and fines. 

Luckily, with certain electric car scheme providers, you can get early termination protection which will protect you when this happens.

Here’s how loveelectric’s early termination protection works:

How loveelectric's early termination protection works

Chart comparing loveelectric to other providers.

1. Pay only one month's lease payment as a fee for early termination (applies after a minimum period)

Keep in mind that the lease only kicks in once the car has been delivered. When it comes to early termination protection, there are different scenarios for employees and employers:

Employees:

At all times, if an employee resigns they can transfer the lease to another employee or take the lease with them to their new employer (if eligible) at no extra cost.

If the employee resigns after 3 months into the lease (and doesn’t transfer the contract or take it with them to a new employer) they will only have to pay a one-off fee worth one month of the gross lease payment. 

For example, if their gross monthly lease is set at £500 per month for a 24-month term and they resign at month eight, the termination fee would be £500. Keep in mind that this amount cannot be salary sacrificed so the fee will the gross amount before taxes.

If the employee resigns in under 3 months (and doesn’t transfer the contract or take it with them to a new employer) early termination protection cannot be applied and the employee  would be liable for up to 50% of the rest of the lease.

Employers:

If the employer makes the employee redundant after 6 months, the employer will pay a one-off fee worth the gross amount of one month of the lease payment. 

As you can see, the worst-case scenarios are if an employee leaves in under 3 months and does not transfer the lease over to a colleague or to their new employer, or if an employer makes an employee redundant in under 6 months.

2. Get 12-month rent-free parental leave

If your employee takes parental leave, they can choose to return the car by paying a one-off fee of one month of the gross lease payment, or they can keep the car for 12 months rent-free as long as they are on statutory pay.

There are some other key points to keep in mind:

  • Parental leave can only start after 6 months of having the car. This is in case the car is not suitable for the person’s needs, which means they’ll be able to cancel the order before the lease has even started to avoid any early termination charges. There is a small risk that the car dealership might levy a cancellation fee, but this is highly unlikely as new car stock is in huge demand and it is easy for them, or loveelectric, to find a new customer for the car.
  • The rent-free period ends as soon as the monthly payment increases above the minimum wage. This is because if the employer is paying a salary, then we argue that they can afford the monthly car lease payment. 
  • Early termination protection for parental leave won’t last longer than the original lease agreement.
  • They won’t be able to make a second claim if they return to work and subsequently decide to end the lease early during parental leave.

Keep in mind that the rent-free period does not apply to sick leave. In this situation, the employee will simply terminate the lease and the regular early termination protection will kick in.

3. Make as many claims as needed

With loveelectric there is no limit on the number of claims you can make. As an employer, whether you have 10 cars or 100, you'll be able to file as many claims as you need without worrying about exceeding your coverage limit. So if you enter a period of financial difficulty and have to make 5 employees redundant, you’ll be protected for each one.

4. Enjoy gap protection 

When a leased vehicle is written off or stolen, the leasing company has their own net book value of the car. However, this number could be different to what the insurance provider decides to pay out. 

It means that the leasing company, who own the vehicle,  could be left with a shortfall between the insurance payment they receive and their expected valuation. In that scenario, the leasing company reserve the right to claim back this difference from the company.

We offer gap protection on our default “Plus” package specifically for this scenario which menas that the company’s that we work with are protected against that gap in the event of a car write-off. 

5. Leave the paperwork to us 

Our early termination protection is comprehensive, which means neither the employer nor the employee will have to worry about a separate protection scheme for specific scenarios. 

We manage the end-to-end order process and provide support to amend employee contracts following early terminations and payroll. The cost of early termination protection is already included in the monthly lease you’ll see on each car in your portal. 

How does loveelectric compare to other early termination protection schemes?

Here's a snapshot of how some popular car schemes in the market handle early termination.

1. Some will only offer early termination after 6 months

Some salary sacrifice schemes won’t offer early termination protection to employees if they resign in under six months of taking delivery of the vehicle. That means that the employee will still be liable for the remainder of the lease policy – or pay up to 50% of the outstanding rentals on the lease. 

Some schemes will also double the monthly rental in the first six months of the lease as a way to build a “buffer” to provide this early termination protection. 

To contrast, loveelectric’s cover for employees starts after 3 months and does not double in price.  

2. Some won’t offer protection to companies with less than 100 employees

Many car schemes do not offer early termination protection for companies with fewer than 100 employees. 

That means that many companies won’t opt to implement a salary sacrifice scheme due to the risks that come with early termination. As a smaller company, the burden would be too high. 

That’s why it’s always important to do your due diligence to determine if a car scheme's early termination policy provides the protection you need before signing up. 

At loveelectric, there are no minimum requirements to be eligible for the early termination protection.

3. Some will limit the number of claims to 10 cars or 10% (whichever is less) 

Some car schemes cap the number of claims you can make – which could be either 10 cars or 10% of your total number of vehicles (whichever is greater).

So, for example, if an employer makes 10 employees redundant, only one will be protected. Or if an employer has 100 vehicles in their fleet, they will only be protected for up to 10 cars. If they have 200 vehicles in your fleet, that number would remain at 10. 

This number resets once a year, which means that if 2 employees resign in one year, employers will only be protected for one.

With loveelectric, there are no limits on the number of claims you can make.

4. Some will only work with companies that have 1,000+ employees.

Other car schemes exclusively work with larger enterprises with 1,000+ employees. 

It simply means that if you work for a smaller company, you won’t be able to access the salary sacrifice scheme and protection you’re looking for. 

5. Some don’t offer rent-free parental leave

Some electric car schemes require the employer to keep paying the monthly lease throughout their parental leave. It means that the employee will likely have to terminate their lease early or choose to pay the lease out of pocket. 

6. Some don’t offer early termination protection at all

Some electric car schemes do not provide any early termination protection at all and instead advise the companies to keep their own “buffer” to cover the cost of early termination. Whilst this could be a feasible approach for companies with very low staff attrition, and a large fleet, it carries a lot of risk for smaller companies. 

Questions to ask when considering early termination protection 

At the end of the day, early termination protection is all about managing risk.

When it comes to choosing an electric vehicle salary sacrifice scheme, you want to pick the one with an early termination protection that works for your specific needs. More comprehensive protection might mean a higher fee, and vice versa – so it’s important to understand what is important to your organisation. 

Before deciding on an early termination protection plan, be sure to ask plenty of questions and do your research to find the best option for your situation.

Here are some questions to ask:

  • What conditions and exclusions exist in the early termination protection?
  • How does this compare to other early termination options?
  • At what month does early termination protection kick in?
  • Is there a cap on the number of claims you can make?
  • What is your policy for parental leave?
  • What is the worst-case scenario for employees and employers?

With loveelectric, all your early termination questions will be answered

Early termination is the number one question employers and employees have, and you want to make sure you have all the right information and questions answered before signing up with an electric vehicle salary sacrifice scheme. 

Companies that offer early termination protection often have different policies and limitations, so it's important to research and understand what you're getting into. 

At loveelectric, we believe in transparency and education, which means you will always be aware of our fees and policies before signing up with us. We want you to feel confident that you're making the best decision for your needs by ensuring our process is straightforward and transparent.

Have more questions about early termination protection? Get in touch with us and we’ll get you set up.

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