Novated lease, car allowance, employee ownership plan… what’s the difference and what’s it all about? Here’s the plain-English explanation.
Business vehicles have traditionally been provided to employees as either a ‘tool-of-trade’ vehicle that is required as an integral part of the employee’s ability to perform the job, or as a ‘perk car’ where middle and senior management are offered a car as a perk of the job, which is often factored into the salary package.
Novated lease
In recent years there has been a very definite move to shift the cost of perk vehicles back onto employees in the form of grossed-up salary allowances. Traditionally this has been done by way of a relatively simple car allowance package.
The more complex “Novated Lease” has been introduced to the market in recent times and is an extension on this trend. The novated lease instrument is common in Australia and involves a 3-way agreement between the lease company, employee and employer.
3 reasons so many companies now prefer grossed-up car allowances are…
- To reduce the cost of providing vehicles to employees.
- To achieve parity between employees.
- To use as a negotiating tool when recruiting new staff.
Essentially what a company will do is work out the total cost of supplying a vehicle to an employee including the cost of the vehicle, maintenance, fuel, insurance and FBT. It is then offered back to the employee as a grossed-up salary allowance for the purpose of providing a car.
We typically see this grossed-up allowance ranging from $15,000 to $25,000 p.a.
Some companies require employees to supply their own vehicle to an agreed standard. Others simply let them run whatever they wish.
The employee can then either buy the car outright, buy it on hire purchase (e.g. Driveline’s car financing package), lease it (e.g. Driveline’s SmartLease™ car leasing package), or in the case of some Australian-headquartered companies use the 3-way novated lease.
Company schemes
We specialise in helping companies set up employee car ownership schemes. We’ll work through the vehicles typically supplied to employees and structure a logical process for determining what the grossed-up allowance would equate to.
The process can fail at this point if the employer looks to shortchange staff on the total package, and the employees eventually realise they are ending up out of pocket.
Once the package is finalised with the company we can then move to the next stage with employees.
We finance employees into the car of their choice using either our SmartLease™ car leasing package or car financing (hire purchase), whichever is most appropriate for each employee. We give them access to the best possible deal on a new car or a wide range of late model, ex-lease cars which provide excellent savings over new cars.
Phone us now on 0800 275-374 for full details on how we can help you as an employer or employee.
