Should you give your employees a company car or a car allowance?

Many UK companies are reviewing their company car schemes and making changes to what they offer their employees. 38% of companies have increased the number of employees entitled to a car allowance and 28% have increased those entitled to a company car*. But what are some of the factors that may signal one route is better than the other?

You have a field-based sales team

If you have a team of field-based sales managers or account managers, the more time they spend in front of customers and prospects, the more business they will likely secure and the more successful they will be.

A productive field sales manager will spend a lot of time in his or her car. This means that the car’s mileage will be high, likely over 15,000 miles per year or more if they cover a large geographic area. This is a clear signal that a company car is a much better option than a car allowance.

Why?

High annual mileage increases vehicle costs

With high mileage comes increased servicing and maintenance costs, so if you offer a car allowance which your employee is using to finance a new car, it is unlikely that it will also cover servicing and maintenance costs, so they will have extra costs to cover themselves.

Behaviours change and productivity drops

If a field sales manager, rather than their company, owns their car, they may think twice about how many miles they drive due to the impact of mileage on the car’s value. To reduce financial impact, a field sales manager may choose to communicate more by telephone or email, rather than seeing customers face-to-face. If you could win business this way, you wouldn’t need an expensive field-based team.

Freedom of choice may damage your company’s brand image

It’s not uncommon for employees to use a car allowance to boost monthly income and therefore spend as little as possible on a car, banking the remainder. If brand image is important to your company, you may find that the freedom a car allowance offers means your team could be driving older cars in a lesser state of repair than you may wish.

With a company car you remove the desire to try and reduce costs. The impact of mileage on servicing and maintenance costs is passed to the business, but the benefit is that your field sales team will be more productive, covering more miles and seeing more customers face-to-face. And with a company car, you can control your company’s brand image. The other key benefit is that you can use a company car to attract the best talent as cars can be a deciding factor between choosing a job at one company over another. After all, a field-based sales manager will spend a lot of time in a car.

Your company cars are perks of the job

A lot of companies offer employees a company car solely as part of a remuneration package to differentiate from the competition and attract the best talent. These cars may sit in the staff car park most of the day and only be used for the commute to and from work and the odd business trip.

Depending on the length of commute and the amount of personal use, the annual mileages could be very low – 10,000 miles or less perhaps. Under these circumstances a car allowance may be the better option for the business.

Why?

Your employees may be financially better off

With a company car, although insurance, road tax and servicing and maintenance is covered by the company, your employees have to pay company car tax. Depending on the car you give them, this can be a large sum deducted from their gross annual salary and one they are committed to for the life of the car. You can check company car tax costs here.

Reduce your company’s credit lines and related costs

Vehicles are a significant cost to a business and depending on the funding method, may require credit. Car allowances will reduce your company reliance on credit lines and remove significant cost commitments, particularly insurance, servicing and maintenance costs.

If you don’t have a strict requirement for your staff to drive a particular car, with a car allowance and 45p per mile for any business travel, your employees may be financially better off. This is because they would be free to choose the type of car they drive, leading to greater employee satisfaction.

You don’t have a dedicated fleet manager

If you don’t have a dedicated expert managing your vehicles -which is very common in small and medium businesses -it is likely to be a role inherited by someone who specialises in a different discipline such as a HR manager, operations manager or company director.

Under these circumstances, vehicle needs are often dealt with in a reactive way on a case by case basis. The full financial impact of the vehicles on the business may not be considered. The potential changing political and legislative landscape can also impact vehicle acquisition, running costs and residual values. Therefore, it may be better for the business to remove these risks and offer a car allowance.

Why?

Management of vehicles is time consuming and costly if not done right

Vehicle costs stretch far beyond the acquisition cost, monthly payment, servicing maintenance and repair costs. Understanding whole-life vehicle costs is a critical factor in the management of a sustainable vehicle fleet. Failing to get a handle on this means that your budget for vehicles will grow beyond what you expect. And if you have a HR manager spending 25% of their time managing vehicles, how much is that time worth based on their salary? And what could they be doing with that time which could add value to your business?

Legislative and political changes that affect vehicles are growing

When you acquire vehicles, you are generally committing to them for a number of years. We are seeing a number of cities introducing or considering the introduction of clean air or low emission zones which can add cost if your vehicles don’t comply with emissions standards.

Diesel vehicles in particular have been hit hard, not just with road tax increases but also their residual values are expected to fall as a result of emissions scandals. These things must be considered when planning your vehicle requirements and vehicle requirements must be considered with a long-term view.

Offering a car allowance to employees removes a financially high-risk responsibility from a person who simply doesn’t have the knowledge or time to do the job in the best way and in the best interests of the company. And if vehicles aren’t business critical then there is less of a reason to hold this responsibility in the business.

You have happy employees in company cars

Something often overlooked by companies is the effect of a company car on employee satisfaction.. 20% of companies in the UK have reduced the number of employees entitled to a company car*, mainly due to cost. But cars are emotional subjects. They have a big impact on engagement and retention.

Why?

A company car exists beyond just the office

Cars you provide to your employees are not just used for work, they are used at home, with the family and going on holiday. They are an integral part of life and so anything that changes this balance could cause problems. Some employees see cars as a symbol of status and with a company car, they’re able to drive something they wouldn’t necessarily be able to afford themselves -new or even second hand.

A reduction in vehicle costs could drive an increase in recruitment costs

If retention rates suffer as a result of changing or removing a company car scheme, any cost savings from vehicles could well be swallowed up by an increase in recruitment and training costs.

So if employee engagement is high as a result of company cars, keep your company car scheme and look at ways of improving it without necessarily increasing costs.

If you are reviewing your company car scheme and need some help to make the right decisions, read our white paper which will help you gather all the information you need to help make an informed decision – the right one for your company and your employees.

* XPert HR Survey 2017


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