Employers: Why should I provide my employees with salary packaging a novated lease?

In the past, employers would traditionally provide motor vehicles to their staff as either a tool for the performance of their work duties or as a benefit to some employees based on the seniority of their role.  This meant the employer either purchased the vehicles outright (creating a drain on their working capital) or entered into an operating lease which provided limited flexibility, particularly if business requirements changed or individual staff members left.  Invariably, the employer was left with the responsibility for the accounting, reporting and payment of their Fringe Benefit Tax and for managing any under or over-utilisation of its vehicle assets.  In addition, it also created two separate types of employee within the organisation – those who received a car and those that did not. Although unintentional, this often led to a feeling of resentment among those staff who were not able to receive this benefit.

The advent of novated leases has challenged prior thinking and practices around the provision of motor vehicles to employees.  The numerous benefits associated with novated leases provide a win-win situation for both the employer and the employees. Let us look at some of the benefits that employers should be aware of and why it is in their best business interests to offer a novated lease to as many of their employees as is relevant.

So, what is a Novated Lease?

A novated lease is a formal agreement between the employer, the employee and the nominated financier for the provision of an asset (vehicle) under a financial arrangement.  The employee enters into the arrangement with the financier and novates the financial responsibilities for that lease to their employer.  The employer makes the repayment to the financier from the employee’s pre-tax salary, provided the employee remains in their employment.  Should the employee terminate their employment, the novated lease reverts to a financial arrangement between the employee and the financier alone, with no ongoing liability for the employer.

What are the benefits of a Novated Lease for the Employee?

• A Novated Lease is beneficial to the employee as this saves them thousands of dollars by deducting the finance payments and vehicle running costs from their pre-tax salary. This has the effect of reducing their taxable income and therefore reducing the amount of income tax that is taken from their salary.
• Through a Novated Lease, an employee is able to select a vehicle that meets the specific requirements of their lifestyle and finances and does not tie them down to one make or type of vehicle only (which most company fleets have used in the past as a way of standardising their costs and capitalising on their purchasing power).
• An employee may also be able to novate a motor vehicle for their spouse to be able to use, thereby securing a second vehicle for the family in the most cost-effective method.

What are the benefits of a Novated Lease for the Employer?

• This reduction in the taxable incomes of all employees through the provision of novated leases has the effect of reducing the total payroll cost of the organisation. As a result, this reduction in total payroll cost may provide the employer with savings in the payroll tax they are required to pay.
• In addition, the reduction in the total payroll cost of the organisation may also result in a reduction to the amount of Workers Compensation Insurance the organisation needs to pay.
• The novated lease provider is responsible for the ongoing management and reporting of all of the vehicles that fall within this program, allowing the Employer to focus on what they do best – running and growing their business!
• The provision of novated Leases by an Employer is one of the employee benefits that drive improved staff attraction and retention to an organisation. In an increasingly competitive labour market, the ability to stand out as an Employer of Choice is paramount.  And as most staff that earn a PAYG income are eligible to have a novated lease, there is no longer a divide between those employees that receive a car as a benefit versus those that do not.

How big an Employer do you need to be to access Novated Leases?

The good news is that novated leases are not just available to the very large organisations.  A novated lease is available to any size employer.  In fact, an organisation that trades under an ABN and runs a payroll for its staff (even if there are only two employees on the payroll) is eligible for a novated lease.

Want to know more?

Please call the team at One Car Group on 1300 616 993 to discuss how we can assist you with salary packaging novated leases for your staff.