Give your company wheels
- Katherine Craig
- 30 June 2009
If your business invovles spending time on the road, buying a car may seem like the most obvious option. However, this is not always the most cost-effective option. Depending on your needs, you might choose to run a fleet of company cars, offer employees a novated lease, join a car sharing service or simply provide a cash allowance for staff to use their own cars.
Company fleet cars
The cost of providing your employees with a car from your company fleet is usually included in their salary package as a fringe benefit. This can be a good option if your employees spend a lot of time on the road. The company fleet option places the responsibility for maintaining a roadworthy car with the employer.
According to Llewellyn Jones, NRMA’s head of retail business insurance, there are a number of things you can do to ensure your company fleet is well looked after.
“We recommend a formal risk management system, modelled on Australian standards, and that the business becomes an active member of an association that offers responsible fleet management support and advice,” he says.
However, a fleet of company cars can become a liability. If your business needs to downsize and reduce headcount, you may require fewer cars, leaving you with vehicles you are paying for sitting in the car park unused. The administration required to maintain a fleet of cars may mean that you or one of your employees has less time to focus on your core business. Outsourcing the administration to a specialist fleet management service company can be a cost-effective way to reduce this burden.
Novated lease
An alternative to keeping a company fleet of cars is to offer your employees the option of a novated lease. Again, this is included in your employees’ salary package as a fringe benefit. It can be a cheaper way for your employees to acquire a car than if they were to buy or lease a car privately, since the cost of the novated lease is deducted from their pre-tax income. Also, there is no GST due on a novated lease, so it is effectively an additional 10% saving.
The benefit of this option is that it removes most of the administration from the employer and the employee can choose the make and model of car they prefer within a set budget.
According to Dominic Natoli, marketing and products leader at GE Custom Fleet and Equipment Finance
, “A novated lease provides employees with choice and the ability to access the purchasing power of fleet management companies. One of the benefits to the employer is that they are
not left with a surplus of vehicles should employees choose to leave the organisation.”
Car sharing service
Another relatively new option is to join a car sharing service. Members have 24-hour access to a fleet of cars. These companies usually offer their service for a fixed membership fee and cars can be reserved for as little as an hour at a time. These services usually charge an hourly and per-kilometre rate in addition to the membership fee, but this covers all the ancillary costs such as fuel and insurance.
The car sharing service is a great option for companies whose employees only need a car to attend short meetings or for daily deliveries. The service requires very little administration and in some cases can be cheaper than paying for taxi fares or rental cars, or reimbursing your employees for using their own cars.
Car allowance
A fourth option is to offer your employees an allowance to cover the cost of using their vehicle for work purposes. Employees can choose how to spend the allowance. If they already have a car, they can use the allowance to cover fuel, servicing, insurance and general maintenance, or they may choose to put some of the allowance towards purchasing a new car. This is paid in pre-tax salary, subject to business usage.
Brand manager Rebecca McDonald opted to receive a car allowance as part of her remuneration package.
“My job takes me out of the office at least 30% of the time, so a car allowance is a much cheaper option for my company than paying for taxis to get me to and from meetings,” she says.
Previously, McDonald opted for a novated lease, but when she recently changed jobs she bought out her novated lease and took the cash option.
“I already have a good car and didn’t see the point in trading it in for a new model under a novated lease. This way I have control over what I spend on my car and any money left over can be put onto my mortgage.”
Keeping your employees safe
As an employer you have legal and moral responsibilities to look after the safety of your employees. If their job requires any driving, this includes ensuring their safety when they are out on the road. The cost of a vehicle accident can be substantial in human and monetary terms.
The Transport Accident Commission (TAC), a Victorian Government-owned organisation that promotes road safety in Victoria, says road crashes are the most common form of work-related fatalities, injuries and absence from work in Australia.
According to the TAC website, this is in part because drivers are often under time pressure caused by tight schedules. Also, if your employees do not own the cars they drive, they may be less concerned about damage or wear and tear.
The TAC suggests implementing a road or fleet safety policy to reduce the risk of injury or fatality, and ensure that your employees know what is expected from them when they use a car to carry out company business.
Which option is best for your business?
Making a decision on which option to go with really comes down to how often your employees need to use a vehicle, the resources you have available to manage the administration and personal preference. It’s a good idea to talk to your accountant about the tax implications, the company’s cash flow and the payment style that works best for your business. #
