A new lease on company car life

by 24 Nov 2009

HR plays a pivotal role in novated leasing programs. Craig Donaldson looks at the pros and cons of such programs and examines how some companies have gone about successfully putting them in place

Salary packaging has long been an attractive benefit for both employers and employ ees. While the government has slowly eroded the benefits of salary packaging for both parties, novated leases still appeal to organistions and their staff.

Many companies make salary- packaged cars available only to senior managers, however there is benefit in making them available to all employ ees, says Petar Ivanovski, manager of team member services for Virgin Blue Airlines. “We open it up to all staff, so it’s not restricted to certain staff based on salary levels, their seniority or other factors,” he says. “You don’t know an individual’s circumstances or their family circumstances outside of work, so it may be attractive for them to have a novated lease.”

At Virgin Blue Airlines, says Ivanovski, this is determined from a cost basis with the individual as well as a tax perspective to make sure that a novated lease is of real benefit. He explains that the uptake of the pro gram within the company has been about 8 to 10 per cent (the average for most organisations).

Similarly, Michael Dack, workshop foreman for Metfit Industries, a sheet metal fabrication SME in Brisbane, says its novated lease program was introduced slowly, beginning with per manent management staff. “The groundwork was done well before offering [the program] to staff and [it] seems to have integrated smoothly,” he says.

“We looked into a few different benefits to offer staff and this was def initely one of the most economical and easiest to implement. A novated lease is quite easy to set up and maintain from the company’s perspective and easy for the employee to both understand and monitor while benefiting from tax savings.”

A larger and more complex novated leasing program was rolled out at BGC – one of Aus tralia’s largest privately owned company groups, with interests in a diverse range of industries such as residential and commercial building, contract mining, quarrying, road transport and insurance.

BGC is a geographically diverse company with more than 30 subsidiaries, which presented a unique set of challenges in rolling out its novated leasing program. Chris Holyday, a salary packaging consultant engaged by BGC to set up and manage its program, says there are some basic elements of success to any such pro gram. “At the end of the day, ‘what’s in it for me?’ is what sells,” he states.

“You’ve got to demonstrate tax effective ness, and then you have to communicate that effectively. Word of mouth ends up being the main reason people take it up in the long run,” he says. There was a healthy take-up of novated leases within BGC within the first 18 months, and Holyday notes that participation rates in such programs improve after a few years through word of mouth.

Picking a provider

All the professionals HR Leader spoke to advised companies looking to implement a novated lease program to do their homework. Holyday says one of the most important things to look for is a full service provider. BGC, whose provider is Direct Salary Packaging, ben efited as a result of Holyday’s research into potential providers.

“I’ve dealt with a number of salary packag ing professionals, and it’s an area fraught with danger if you don’t have someone who pro vides a full range of services. If you get this wrong you could get a lot of staff who have taken up cars knocking at your door com plaining quite bitterly about the situation and the experience they’ve had,” he warns.

“Get providers to put forward clients for reference – they will, of course, give you companies that will give them a good rap. So conduct some market intelligence and see who else they provide services to and speak to them.”

Ivanovski agrees, and says it is also important to have access to a dedicated account manager in the service team of the provider – something which is made available to Vir gin Blue Airlines by its provider, sgfleet. “To me that is worth a million dollars, because it gives you that direct contact with the leasing company to resolve issues and that can make things easier,” he says.

Most companies will primarily look at the cost of a novated lease program, but Ivanovski says there are other important factors to take into account. “Cost is relatively the same across all novated leasing companies,” he explains. “People may tell you dif ferent, but there will always be margins and different variances. For me, it’s also impor tant to look at things such as service, access for staff, reporting, admin for FBT and so on. You need to take all those things into account, and we’ve learnt that over time.”

Advice from the learned

In order to communicate the benefits of a novated lease program, companies first need to have a thorough understanding of them. As with any contract, Dack says it is impor tant to get across the details of the program, which in his case was made easier through assistance offered by its provider, FinCar. “The initial set-up was time consuming for the first novated lease, mainly due to setting it up in the accounting program and under standing the process, but from then on it was fine,” he says.

“The only advice I can offer – which is fairly basic accounting – is to make sure it’s set up correctly and keep track of the account periodically, making sure that the correct payments are made and on time.”

Ivanovski concurs. “Make sure the reporting is right, so when a lease commences, deductions start on time and no-one is chasing any money,” he advises.

“I always gauge a good benefit by way of complaints. If you don’t have any and no- one is ringing you with concerns or issues, then you know it’s working well. That’s always a good measure. You don’t need to go out and ask people; you will get feedback from relevant staff if it’s not working.”

Holyday’s advice is simple: understand the product. “Some HR professionals really don’t get it,” he laments. “The successful HR teams are the ones that are very proactive in wanting to understand all the benefits and downsides, so they’re in a good position to communicate those to employees.

“You can’t just outsource it and close your eyes to it. You have to back it, and pro vide a follow-up service to each and every driver. So unless you’re prepared to do that, then be prepared to wear some agro.”