Ultimate Guide to Novated Leases for Employers: Benefits, Tax Savings & Process

Attracting and retaining top talent is a priority for any business, and offering competitive employee benefits can make all the difference. Novated leasing is one such benefit that provides financial advantages for employees while also offering businesses potential payroll tax savings and simplified fleet management. For employers, implementing a novated lease program is a cost-effective way to enhance employee remuneration packages without increasing salary costs. This guide will explain how novated leases for employers work, their benefits, employer obligations, cost considerations, and how to integrate them into your business.

How Novated Leases Work for Employers

A novated lease is a salary packaging arrangement that allows employees to lease a car using their pre-tax salary. It is a three-way agreement between:

• The Employee – Leases a car and has payments deducted from their salary.
• The Employer – Facilitates salary deductions and remits payments to the finance provider.
• The Finance Provider – Manages the lease, including the vehicle’s running costs.

The Process of a Novated Lease for Employers

1. The employee selects a vehicle and enters into a lease agreement with a provider.
2. The employer deducts lease payments and associated running costs from the employee’s pre-tax salary.
3. The finance provider manages payments, bundling costs such as fuel, servicing, insurance, and registration into the lease.
4. The lease continues while the employee remains with the company.
5. At the end of the lease, the employee can purchase the vehicle, upgrade to a new lease, or return the car.

A key advantage of this system is that the employer does not own or manage the vehicle, reducing administrative complexity compared to company-owned fleets.

Benefits of Novated Leasing for Employers

1. Attract and Retain Talent

Novated leasing enhances your benefits package, making your business more appealing to potential employees seeking tax-effective car ownership.

2. No Direct Cost to the Employer

Lease payments come from the employee’s salary—no additional financial outlay for the business.

3. Reduced Payroll Tax

Salary-sacrificed vehicle payments lower employees’ taxable income, potentially reducing employer payroll tax obligations.

4. Simplified Fleet Management

• Reduce financial liabilities.
• Shift responsibility for running costs to the employee.
• Eliminate depreciation concerns.

5. Increased Employee Satisfaction

Tax savings and convenience lead to higher job satisfaction and retention among employees.

6. Green Incentives for Sustainability Programs

Employers looking to align with corporate social responsibility goals can benefit from greater tax savings on eligible electric vehicles, which are often exempt from FBT. This makes novated leases especially attractive for sustainability-focused companies.

Employer Obligations in a Novated Lease

Novated Lease Employer Responsibilities

To run a successful novated lease program, employers must:

1. Process Salary Deductions – Deduct payments and remit to the finance provider.
2. Facilitate Lease Agreements – Partner with a reputable novated lease provider.
3. Manage FBT Reporting – Comply with Fringe Benefits Tax obligations.
4. Educate Employees – Clearly explain lease terms and responsibilities.

Common Misconceptions

A frequent concern: What happens if an employee leaves? Novated leases are portable—employees can take the lease with them or take over payments, so employers are not liable for ongoing costs.

Employer Liability: Some believe novated leases add long-term risk to company balance sheets. However, as the lease remains an employee obligation, it doesn’t appear as a liability on your financials, which can improve balance sheet ratios.

Can Employers Claim GST on Novated Lease in Australia?

Yes, in many cases. If the novated lease is structured correctly and the employer assumes the lease obligation, the GST on lease payments can be claimed as an input tax credit. For example, if the monthly lease payment is $1,100 (including $100 GST), the employer may be eligible to claim the $100 GST. However, if the vehicle is used partly for private use, the GST must be apportioned. Always consult with a tax advisor to ensure compliance based on your business scenario.

Novated Lease Costs for Employers

Financial Impact of Novated Leasing

• No Upfront or Ongoing Costs – Employees cover costs via pre-tax salary deductions.
• Potential Payroll Tax Savings – Lower taxable income can reduce employer payroll obligations.
• Minimal Administrative Overhead – Finance providers manage most of the process.

Using a Novated Lease Employer Calculator

Use a novated lease calculator to estimate:

• Payroll tax reductions
• Potential savings
• Financial impact per employee

Novated Leasing and Fleet Management

For businesses offering vehicles, novated leasing simplifies management while reducing costs.

Novated Leases vs. Company-Owned Vehicles

By transitioning to novated leasing, businesses can cut fleet expenses and reduce depreciation risks. Company Car VS Novated Leasing

How Employers Can Implement Novated Leasing

Step-by-Step Guide to Offering Novated Leasing

1. Partner with a Novated Lease Provider – Work with a trusted provider like One Car Group.
2. Educate Employees – Communicate benefits clearly.
3. Integrate Salary Packaging into Payroll – Update payroll systems for pre-tax deductions.
4. Use an Employer Calculator – Evaluate financial outcomes.
5. Monitor and Manage Leases – Oversee employee participation with HR and finance.

Offering novated leasing requires minimal setup but delivers maximum value for both employers and staff.

Conclusion & Next Steps

Novated leasing is a smart, cost-neutral way for employers to offer attractive employee benefits, reduce payroll tax, and avoid the hassle of fleet management. It boosts retention, saves money, and requires very little admin work.

Get Started with Novated Leasing Today

Ready to offer novated leases in your business? Contact One Car Group for tailored solutions that make implementation easy. Take advantage of tax savings and enhance your employee value proposition today.

Frequently Asked Questions (FAQs)

1. What are the employer obligations for a novated lease?
Employer obligations include facilitating salary deductions for lease payments, partnering with a lease provider, managing FBT reporting, and educating employees about their responsibilities. The employer doesn’t own the vehicle but is responsible for ensuring the lease payments are deducted and remitted correctly.

2. How does a novated lease compare to a company car?
A novated lease allows employees to lease a vehicle through salary packaging, with the lease payment deducted directly from their pre-tax salary. Unlike a company car, where the employer owns the vehicle, the novated lease is a three-way agreement between the employee, employer, and finance provider.

3. What are the benefits of a novated lease for employers?
For employers, a novated lease is cost-effective as it doesn’t involve upfront purchase costs or maintenance. It also reduces payroll tax liabilities and simplifies fleet management. It can also help in employee retention by offering a valuable perk.

4. How is novated lease payroll setup managed?
The payroll setup for a novated lease involves setting up salary packaging where deductions are made from the employee’s pre-tax salary. Employers need to collaborate with a lease provider to handle the remittance of payments.

5. Can an employer offer a novated lease without directly owning the vehicle?
Yes, with a novated lease, the employer doesn’t own the vehicle. The employee leases the car and makes lease payments through salary deductions. The vehicle is owned by the finance company, reducing liability for the employer.

6. How does an employer manage a novated lease?
The employer manages a novated lease by facilitating payroll deductions, ensuring FBT compliance, and partnering with a leasing provider. The employer is not liable for the vehicle’s maintenance or running costs.

7. What is the novated lease process for employers?
The novated lease process involves selecting a vehicle, signing a lease agreement, setting up payroll deductions, and managing ongoing payments. The employer plays a role in processing the deductions but does not own the vehicle.

9. What is salary packaging in a novated lease?
Salary packaging for a novated lease allows employees to pay for their vehicle lease using pre-tax income, resulting in lower taxable income and potential tax savings.

10. Can salary sacrifice be used in a novated lease?
Yes, salary sacrifice can be used in a novated lease to pay for the vehicle lease and related running costs from pre-tax income, thus reducing the employee’s taxable income and tax liabilities.

11. What are the tax advantages of a novated lease?
A novated lease offers tax advantages by reducing the employee’s taxable income through salary deductions for lease payments and running costs. Additionally, employers can benefit from payroll tax reductions.

12. What happens if an employee leaves during a novated lease?
If an employee leaves, the novated lease remains their responsibility. The lease can either be transferred or the employee can continue the payments directly with the finance provider.

13. Are novated leases available for electric cars?
Yes, novated leases for electric cars are available and can provide significant tax savings, as electric vehicles often qualify for Fringe Benefits Tax (FBT) exemptions, making them an attractive option for both employers and employees.

14. Can small businesses offer novated leases?
Yes. Reputable providers like One Car Group support companies of all sizes, including those with limited HR resources.

15. Are there FBT exemptions for novated leases?
Yes. Business use and eligible electric vehicle leases are exempt from FBT, offering substantial savings.