Fleet costs can be reduced if employers adopt a five-point plan of action
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- There are many ways employers can cut their fleet costs, which they can identify by carrying out a policy review.
- Employers can ask staff to take more responsibility for the way they drive and treat a company car, to help generate cost savings across the fleet.
- Restricting the fuel pump locations where employees can fill up their cars can encourage them to use cheaper fuel stations.
The company car is an attractive and highly valued employee benefit, but it can prove costly for employers. Thankfully, there are some costcutting measures organisations can use. Here are five areas for employers to examine to drive down car costs.
1. Policy review
A fleet policy review may throw up some alternative methods of offering company cars that will save an employer money. Roddy Graham, commercial director at Leasedrive, says employers should consider how they deliver the perk, for example by using a tax-efficient salary sacrifice arrangement, which may have been overlooked if employers have not reviewed their car policy for years.
Salary sacrifice can be more suitable than a company car, or cash alternative, for staff who are not driving many miles, and it can recoup costs for employers through lower national insurance (NI) contributions. Andrew Leech, managing director at Fleet Evolution, says: “Salary sacrifice, by its very nature, will push somebody towards a lower-carbon dioxide (CO2) car, as well as reducing an employer’s duty of care because it is a lease car, rather than a car procured or managed privately.”
Another consideration when reviewing a fleet policy is to look at shared-risk contracts. Lease providers typically charge employers a penalty if a car is returned at the end of a contract with excessive damage, or if it is over the contract mileage. However, some providers may pool mileage for multiple cars or include a buffer for a certain amount of damage, so it pays for employers to shop around for a lease provider with a flexible approach to contracts.
2. Driver behaviour
The way an employee drives a car can have a huge impact on the cost of fuel and the wear and tear onthe car. Encouraging staff to take more responsibility for their actions, and to consider the way they drive, can affect fuel consumption and the cost of repairs. For example, employees should be encouraged not to accelerate or brake hard, and to plan their route. Leasedrive’s Graham says: “All these things have a significant impact on fuel economy. For people who are a little more organised and drive a little less aggressively, fuel consumption can differ by 10% to 15%.”
Ian Hughes, commercial director at Zenith, says insurance policies can affect driving behaviour. “Consider whether there is a strong or lenient policy toward insurance excess,” he says. “The company car is still an asset of the organisation, so does the driver look after it? Typically, if there is no excess, the driver tends not to look after the car as well as they should, but if there is an excess for which they are responsible, they will take a little more care.”
3. Fuel management
Fuel is one of the biggest costs of running a car, and with fuel prices rising, employers’ expenditure here shows no sign of decreasing. But there are some measures employers can take to reduce costs. For example, employees’ fuel expenses claims can be based on their consumption. Fleet Evolution’s Leech says: “At the moment, most employers will either refund or ask employees to reclaim, based on the engine size of the car.”
The price of fuel varies across the UK, so employers could also restrict the locations where staff can fill up their cars to further reduce costs. Zenith’s Hughes says: “Premium stations on a motorway, for example, can be 8p to 10p a litre more. Employers could prohibit or restrict use of those stations.”
4. Whole-life cost
Evaluating the cost of providing a fleet based on a whole-life cost calculation can also bring savings. This means taking into account: the price of a car; its depreciation over the period that an employee has it; the cost of funding; the resultant tax cost to a business for providing the car; an employer’s class 1 NI contributions; the fuel economy of a car; and the overall cost of service, maintenance and repairs.
Graham says employers should also consider the cost of insurance “Is it a high performance car with a huge insurance load compared to other vehicles?” he says.
Hughes says that, typically, fleet costs will cover the rental of the car only, which will be made up of the maintenance, the residual value, and the funding. However, taking other factors into account, such as fuel consumption or CO2 levels, will give an employer a more accurate understanding of the costs associated with running its fleet. Hughes says: “Typically, these are out-of-sight, out-of-mind costs that are borne by the organisation. Employers should try to draw all these costs together because that then becomes self policing and self-governing.”
5. Car choice
Employees tend to be more inclined to select a car that suits their lifestyle rather than a high-performance sports car, so there is plenty of scope for an employer to review the choice of cars it offers in its fleet to help reduce costs.
Graham says: “That tends to be cars that have lower CO2 emissions and improved fuel economy. But the benefit-in-kind tax is significantly lower on a more efficient car, so there are savings all round for the employer as well as the employee.”
Leech agrees, pointing out that many organisations have out-of-date fleet lists that do not take into account the latest hybrids or electric cars.
That said, employers should base their choice of fleet on their reasons for offering the cars in the first place. If it is on a job-need basis, there would typically be less choice, says Hughes. “If an employer is using it as a perk and it is about employee motivation, then it’s about making sure it has the right products to retain the staff and motivate them.”
CASE STUDY: HOME GROUP
Salary sacrifice car scheme builds support
Home Group launched a salary sacrifice car scheme as part of a move to enhance its benefits package while making savings.
The social housing provider replaced its company car benefit with a cash payment, which staff can use to pay for a car through a salary sacrifice arrangement.
Available to all permanent and fixed-term contract employees, the scheme offers a choice of cars that have a fixed emissions cap of 155g/km of carbon dioxide (CO2). Since the scheme was introduced in July 2012, 30 cars have been delivered and 10 more are awaiting delivery.
The salary sacrifice scheme brings tax and national insurance savings for both the organisation and its employees.
Home Group informed its workforce about the changes to the scheme using intranet messages and emails.
It also held roadshows at its main offices, including question-and- answer sessions with scheme provider Tusker.
Kelly Mitchell, HR business partner, policy and reward at Home Group, says: “We had a good response from employees; it was really promising. In the run-up to launch, we had a lot of employees waiting for the scheme to come into place. For such a big purchase, the level of take-up we have had so far is quite promising.”
VIEWPOINT: Peter Cooke, professor of automotive management, University of Buckingham
Few fleets are perfect. There is always room for cost reduction. The challenge is to identify the opportunities, take them and then continue to take them, while showing a real cost saving.
Essentially, opportunities split into short-term and strategic issues.
Short-term fleet cost-management opportunities are typically associated with best practice and are a matter of driver practice, perhaps enhanced if motivated by management. Tyre pressure is so obvious it is too often ignored, but 10% or more fuel-efficiency savings are available if tyres are checked regularly.
Equally, employers should remind staff of best driving practice: acceleration, braking and careful driving are simple but easy savings. The extent to which drivers use the most cost-effective planning for journeys that cannot be avoided is another consideration.
But there are far more opportunities at the strategic level. Consider fleet insurance history. Is a fleet covered by a single policy? Could there be opportunities for an employer to hive off poor-record drivers and take the hit on a small number of the cars rather than across the fleet?
The best cost savings are achieved by an employer not providing cars. What are [employers’] criteria for providing cars? Would it be possible for employees to either share cars or use rental vehicles? What paid-for services does the organisation provide for car users, and are they all really necessary? Car downsizing is fashionable at present: are [employers] following the trend?
Any steps taken to reduce company car costs must be sold to car users and have their buy-in. Without that support, the scheme is likely to fail. But employers must remember that the company car is earning its keep only when it is away from immediate management supervision.