Announcements in the 2017 Government Autumn budget of tax increases on company vehicles have prompted many businesses to consider giving their employees cash allowances in place of running company car schemes.
On the face of it, this would seem to be a cost-effective solution for the company, but comes with often-overlooked ramifications which impact on employees and company alike. Some of these consequences appear to be relatively minor but, taken as a whole, can seriously affect the business in several areas and may even raise costs, instead of reducing them.
Costs to employees
Companies have access to corporate leasing discounts, which individual employees don’t enjoy. This means that employees no longer in company car schemes will either have to find the funds to buy a vehicle of their own outright, or raise a substantial deposit and take on a finance agreement. Not everyone has this level of savings available, or indeed has a credit rating good enough to allow them to set up a personal finance arrangement. Individual employees would also be responsible for the costs of insuring, taxing and servicing the vehicle, putting a considerable ongoing financial burden on them.
Only a small proportion of businesses regularly monitor the condition of vehicles in their grey fleets – cars owned by their employees and used for company purposes. Ideally, grey fleet cars should receive the same monitoring checks that company cars do, particularly as they are often older than the more efficient fleet of leased company vehicles which tend to be changed every three years.
Failure to make these checks can result in unsafe vehicles being used in the company name. This could render the business liable to claims of a gross breach of their duty of care to their employee and others in the event of an accident. At best it could prove extremely costly in money and bad publicity, at worst the company could be charged with corporate manslaughter if lives are lost.
Both the 1974 Health and Safety at Work Act and the Corporate Manslaughter and Corporate Homicide Act 2007 place the onus for the safety of vehicles used for work-related journeys squarely on the company.
Another consideration is energy efficiency and pollution. At eight years old-plus, the average grey fleet car is considerably less economical and less environmentally friendly than newer, lower C02-emitting vehicles. This could significantly and negatively affect the carbon footprint of the company.
Employees using their own cars for business related journeys can claim mileage costs from the company. This is currently at the rate of 45 pence per mile for the first 10,000 miles and 25 pence per mile after that. These are significantly higher amounts than for those driving company cars, whose rates are based on the size of the engine and the type of fuel used. Businesses could very well find that the attempt to cut costs by getting rid of their company cars is defeated by the considerably higher cost-per-mile expenses claims.
Retention and recruitment
Prospective employees appreciate the value of a company car scheme. They may well direct their job applications to those businesses which offer these benefits, potentially limiting the ‘best people’ pool for those companies which don’t.
Existing employees who have enjoyed having the valuable perk of a company car, maybe for some years, and then have this removed are likely to become disgruntled and may start looking further afield for employment.
It might seem to be a relatively minor thing to affect an employee’s contentment with or choice of a job, but add together the use of the car itself, plus the cost and hassle-free elements of having the car regularly serviced, taxed and insured by the company. It’s then possible to see that a company car is a very valuable job benefit.
As already mentioned, the average grey fleet car is over eight years old and may well not be maintained either mechanically or aesthetically to a high standard.
Creating a brand is an expensive and time-consuming process which, like a reputation, can take years to build and moments to diminish. Eliminating company car schemes and allowing employees to use whatever car they like for work can result in unsuitable and unreliable vehicles being seen to represent the firm, destroying the hard-won corporate image in one fell swoop.
Weighing the balance
As shown, the decision to discard company car schemes in favour of a grey fleet is not one to be taken lightly. Many implications have to be assessed and measured against each other and it can be hard to reach a clear-cut conclusion as to which offers the best direction for your company to take.
It may be that simply looking around for better leasing options may solve the dilemma – giving the employees the benefits they want and at the same time reducing company costs.
Alternatively, there are innovative employee car schemes available that help to provide cost effective ways of providing staff with this attractive benefit but managing the risks described above.
Getting some advice on how to realise your company’s particular needs is the ideal way to go. A fresh eye can often distinguish the wood from the trees and come up with new ideas to reach the required goals.
To find out more about how we can help you solve your fleet and company car scheme issues, please get in touch.