Cutting fleet costs while matching employee needs

Employers are looking at various ways to cut car costs during the recession, including mixing fleet funding methods to better match arrangements to individual employees’ need, says Nicola Sullivan

If you read nothing else, read this…

– Employers that adopt a mixed-fleet approach, rather than a one-size-fits-all method, may be able to cut costs while keeping an element of choice for staff.
– It is important to take business mileage into account when deciding which employees should be given company cars, cash allowances or employee car ownership arrangements.
– The cars of grey fleet drivers are more difficult to maintain, and could therefore make it more difficult for employers to meet duty-of-care requirements.

Employers keen to cut costs during the recession may be tempted to restrict their fleet arrangements by reducing the choice of vehicles offered to staff. For instance, organisations that limit their fleet of cars to one manufacturer, such as Ford, may obtain better deals on pricing.

Fiona Hall, commercial director at Arval, says: “Cars are a key tool for attracting and retaining high-quality staff. As a consequence, many businesses continue to operate a company car fleet, but are looking at more cost-effective ways to manage it, for example by implementing a fuel card policy, moving to single-badge fleet deals, or cutting costs by restricting staff choice.”

Employers could save costs with a mixed-fleet (also known as user-chooser) approach, which offers staff the most economical car for their individual driving needs. Through such an arrangement staff can be offered a company car, an employee car ownership arrangement or a cash allowance. This can save cash for employers while maintaining some choice for staff. Jim Salkeld, chairman of Toomey Opticar, says: “Put together properly, a mixed fleet can save, typically, £1,000 a year per car, or more. It can save money and give staff a benefit as good as, if not better [than a single approach], which is the object of the exercise.”

When determining which option is the most cost-efficient for individual employees, employers should look at factors such as the person’s mileage, their tax rate and role within the business, as well as a car’s whole-life cost and carbon dioxide emissions, says Hall.

But first of all, employers should identify how much their company car provision is costing them. This can be done by examining the whole-life costs of each vehicle, says Salkeld. Whole-life cost calculations can include working out the difference between the purchase price and the residual value of the car at the end of the contract, as well as insurance, maintenance and servicing costs. Fuel efficiency and the amount the car will be taxed are also important factors.

“”Once employers know what their manufacturer’s terms are and they have reduced costs to an absolute minimum for company car provision, they can look at the equivalent cost of an employee car ownership scheme or cash allowance-bought cars,”” Salkeld explains.

It is particularly important for employers to take business mileage into account when deciding which employees should be offered cash allowances and employee car ownership arrangements. Chris Chandler, associate director at Lex Momentum, says: “If one employee covers 5,000 private miles and 25,000 business miles, that person’s benefit is 5,000 private miles. If another individual does 25,000 private miles and 10,000 business miles [in exactly the same car], their benefit means more to them because they are doing much more private mileage. Also, the cost of running the car with the high mileage is a lot higher.”

With cash allowances and employee car ownership arrangements, it is also important for employers to take into account approved mileage allowance payments (Amaps), which compensate employees who use their own cars for business use. These reimburse staff at the rate of 40p a mile for the first 10,000 business miles covered and 25p a mile thereafter.

Salkeld says: “Ironically, perk drivers are probably going to be better off in company cars as long as the emissions are relatively low and business-need drivers are probably going to be better off in employee car ownership cars or with cash allowances.”

Cash allowances are subject to tax and national insurance and do not attract the tax breaks enjoyed by company cars. The cost of leasing cars, for instance, is deductible against taxable corporate profits, which, since 1 April 2009, is linked to 15% of the rental cost for cars emitting more than 160g/km of CO2.

Also, it can be more difficult for employers to ensure that staff-owned cars driven on business are properly maintained, which makes it more difficult for an employer to meet its duty-of-care responsibilities. “Employers cannot just give cash and walk away, because their corporate responsibility is the same regardless of who owns the car,” says Chandler. “I have yet to see a grey fleet that is newer and better maintained than a company fleet.”

In the current economic climate, it is understandable that many employers are focusing on budgets and numbers, including their car arrangements, but it is also important for them to consider the impact of any cost-cutting initiatives.†