Top tips to control company car scheme costs

There are many ways in which employers can control their company car scheme costs. Here are five top tips to help.

1. Align car choice with employee grade

Employers should ensure the choice of company cars they offer their workforce is aligned with employees’ grades.

Alastair Kendrick, director at MHA MacIntyre Hudson and one of eight guests at the Employee Benefits Fleet roundtable debate hosted in July, says: “Employers need to assess the appropriateness of their car choice for different employee grades, and leasing companies should also be asking whether employers have the best cars for that particular grade of employee.”

2. Choose the most cost-effective funding option

Fleet scheme funding options have evolved from a simple choice of contract hire or cash benefit to now include salary sacrifice and employee car ownership schemes, so it is important for employers to carefully consider the most cost-effective option to implement, and whether more than one option is needed. 

Chris Chandler, senior consultant at Lex Autolease and a roundtable guest, says: “A lot of employers ask us which is the most cost-effective funding method. We can do lots of calculations and look at the tax and the VAT , but often my advice is not based on pure cost, but whether the employer actually wants to get involved with lots of different funding methods and more complexity.”

Online tools are available for employers to assess the most suitable and cost- and tax-efficient funding method for an employee based on their car choice and anticipated mileage. Jonathan Smith, a relationship director at Zenith, says: “It is easier than ever for employers to be multi-funded, but it is actually now about persuading employers that it really is getting more straightforward.” 

Employers should also consider whether a cash allowance might be more appropriate for their workforce, but they must consider the challenges. MHA MacIntyre Hudson’s Kendrick explains: “We find that employers often wrongly calculate the cash alternative in our experience, so it’s too generous.” 

3. Beware of rate creep

Employers need to look beyond the initial quote they are offered by a fleet provider and ensure that the ongoing costs of running the scheme do not escalate beyond their budget over time.

Caroline Sandall, fleet manager at Barclays and deputy chairman of the Association of Car Fleet Operators, says: “Monitoring rate creep is absolutely critical, but it is difficult because the price of a car is changing all the time and there are all sort of factors around residual value and maintenance costs, for example.”

Sandall says providers’ management fees that may seem high in isolation may actually represent only a small proportion of the total cost of a contract when considering the total life cost of a car.

4. Discontinue fully-expensed fleet cards

One of the easiest ways for employers to control their fleet costs is by discontinuing fully-expensed fuel cards . David Hosking, chief executive at Tusker, says: “I am amazed at the number of employers that still give fully-expensed fuel to drivers because that is the easiest saving in the world to make. We were buying staff out of their fully-expensed cards in the 1990s.”

5. Assess fleet scheme costs

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But none of these tips can be undertaken without employers first understanding their current fleet costs and identifying exactly where these sit across their business, which varies between organisations.

Sandall says: “I think that whenever employers are reviewing or looking at how to control costs better, they have to make sure they have captured absolutely everything and can baseline where they are now in order to compare against alternatives in the future and identify where there are opportunities to create savings.”