Twenty years ago, fleet management was usually the responsibility of the operations manager. Now, it’s often up to human resources to take care of the task. Teresa Russell reviews two companies that have broadened their benefits offer to include novated leasing for staff
Twenty years ago, fleet management was usually the responsibility of the operations manager. Now, it’s often up to human resources to take care of the task. Teresa Russell reviews two companies that have broadened their benefits offer to include novated leasing for staff
Simplot Australia may not be well known to many people, but its brands, including Edgell, Birdseye, John West, Leggo’s, Ally and Seakist, are famous. In Australia, Simplot employs 2,000 people in five factories, state offices and its corporate head office. Paul Rate, the company’s remuneration and benefits manager, says two types of vehicle are provided to staff. Sales reps drive ‘tools of trade’ cars and salaried staff are moving from ‘benefit cars’ to novated leasing.
Alcoa World Alumina Australia employs 6,000 people across its mine sites, refineries, corporate head office, smelters, power stations and rolling mills. Kevin Tobin, Alcoa’s regional HR services manager says the company has about 200 management vehicles, but also offers novated leasing through salary sacrifice to the rest of the company’s employees.
Evolution of fleet management
Although the fleet management industry has been around for as long as companies have had vehicles to run, the nature of the services offered last changed dramatically in 1986, with the introduction of fringe benefits tax. Novated leasing was born. This decade has seen greater uptake of novated leasing to all employees in a company – not just managerial staff. Since all costs are paid in pre-tax dollars, vehicle salary packaging can be a tax effective strategy for all employees, regardless of their seniority.
Attraction and retention
In mid-2002, Simplot adopted a total employment cost packaging philosophy, ensuring that individuals were aware of the total cost of all their benefits, car included. “Managing a car fleet is not part of our core business. As a part of our attraction and retention strategy, we wanted to offer people more choice in the car they drove and encourage the employee to assume more responsibility for vehicles they didn’t need for their job,” says Rate.
Alcoa started offering novated leases about four years ago to some staff, opening it out to all employees after a successful two year trial. “The main rationale was to make the salary package more flexible. Some employees have chosen an upgraded vehicle and paid a bit extra themselves, while some people (who could take public transport to work) took the cash,” says Tobin. He gives his own case as an example of flexibility. Approaching his late 50s, Tobin says that when his current lease runs out he may choose to buy his next car and put the money he currently spends on a novated lease into superannuation.
The business case
Neither Simplot nor Alcoa approached the issue of fleet management and novated leasing from the point of view of return on investment. “It made sense to the company not to be left with having to dispose of ex-lease vehicles and the employees liked the choice it gave them. It also seemed sensible to outsource the service to a skilled provider,”says Rate.
“We knew how much cars cost us under the old program, paying directly to the leasing company, but this was never going to be a cost saving activity. It was about adding flexibility to a package and letting employees take advantage of tax effective salary packaging,” says Alcoa’s Tobin. The outcome at Alcoa is a cost neutral program with improved flexibility for every employee.
Choosing a supplier
Both Alcoa and Simplot had existing relationships with leasing companies when they decided to move to novated leasing and extend the offer to more staff. Alcoa chose three preferred suppliers and set performance metrics as part of the arrangements. “We don’t micromanage the process. If one supplier does not perform to expectations, one of the other suppliers will get the business,” says Tobin.
Rate says that Simplot originally appointed one preferred supplier, but has since added another. “Offering a panel of providers gives the employees choice and makes them more responsible for getting themselves the best deal,” he says.
Communicating with employees
Although Simplot and Alcoa are very different companies, both Rate and Tobin had the same problem in introducing novated leasing to their staff. “The hard part was convincing people to not feel disadvantaged, especially those who did above 50,000 km or around 10,000 km per year. Our suppliers now have a pretty slick product compared to when we started out [with this program],” says Tobin.
Most of the major fleet management companies have web-based quotations and monthly reconciliation statements sent to each customer via e-mail.
Simplot went to great lengths to educate its employees about the reasons the company was moving away from ‘benefit vehicles’ and towards novated leasing. “We ran a series of workshops using real life examples for our employees and spent a lot of time explaining individual impacts of leases,” he explains. Rate advocates using a variety of media to promote novated leasing to employees and to roll out the introduction slowly, once policies and procedures are in place.
The paperwork
“When we first started novated leasing, we didn’t appreciate the amount of time it would take (throughout and at the end of the FBT year) to reconcile individual accounts and manage termination of the leases,” Tobin confesses. The responsibility for this paperwork at Alcoa rests in the finance department, alongside payroll. Tobin says that in the first few years, people under or overestimated the number of kilometres they were going to use, so February would see some people driving constantly in order to get the right odometer reading by 31 March. The monthly tracking that Alcoa’s suppliers now provide prevents surprises at the end of the FBT year. If an individual appears to be tracking outside their budgeted kilometres, they can renegotiate the lease mid-year.
Tips for success
Rate believes it is important to understand the full impact of novated leasing on individual circumstances. “You can’t just outsource all your responsibilities to a provider, without understanding what you have outsourced,” he says. Once one or more providers have been chosen, companies must clearly agree KPIs and manage the provider against these performance criteria. He reiterates that it is vital to communicate clearly with staff and to remember that the risk and responsibility with this benefit has moved from the employer to the employee, so it may be viewed with some suspicion.
Tobin thinks it’s much easier now to introduce salary packaging and novated leasing than when Alcoa first did, because suppliers now provide monthly tracking of kilometres against budget. “Now there can be no excuses about kilometres not driven by the end of the FBT year,” he says.
He also advocates including IT and finance in discussions with suppliers, to ensure that potential suppliers have systems that can work easily with one’s own. “Talk to other companies that are well into novated leasing and ask around through HR networks before introducing it,” Tobin advises. Alcoa also does a full review of the cost of vehicles in March, to ensure they are still valuing the benefit correctly.
