Top tips to cut the cost of fleets

Fleet costs can be reduced if employers adopt a five-point plan of action

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.”