For the employer, setting up a novated lease scheme for company lease cars does not necessarily have to involve a cost to the business. If the scheme is set up properly the novated lease should offset the post-tax cost of the car over the lifetime of the vehicle. The employer may also additionally benefit from avoiding insurance contributions on the salary sacrificed car, which can be used to fund the scheme.
Depending on the size of the scheme, employer contract hire and novated leasing schemes can also benefit from increased buying power with manufacturers, offering vehicles at discounted rates.
In addition, by choosing the vehicle range intelligently employers with low carbon emissions vehicles in mind, can benefit the environment as well as their bank balance. Employers that purchase a new car with CO2 emissions of 110g/km or that is electric can offset great quantities of greenhouse gases.
Setting up a novated lease can also be done on a cost-neutral basis for employees. They save on income tax because the payment comes from their gross income. It is true that there is a benefit in kind liability. However, the employee saves on GST and their tax liability can be minimised by choosing this type of finance option.
When total costs such as insuring and maintaining the car are considered, it is estimated that leasing a car through a novated lease can save an employee between $140 and $400 per month.
An indirect financial benefit to employees is that by having the use of company lease cars, they will be able to sell a vehicle that they already own resulting in a lump sum payment.
In addition to the financial aspects, there are also non-monetary benefits to a scheme. Employees do not have to service, maintain or repair a car as this is taken care of by the car company. Avoiding these modern inconveniences can offer the quality of life benefits to staff, as well as minimising time spent away from work taking care of repairs and servicing.
Salary sacrifice schemes such as the novated lease offer a viable option for contract hire and leasing but employers should also be aware of the potential downsides. If there is a change in the employee circumstances, such as maternity leave, long-term sickness or redundancy, it may impact the employer. Maternity or sick leave is paid as a benefit rather than salary and therefore does not come under salary sacrifice. The cost in these cases falls on the employer. Also, if staff leave or are made redundant there may be cost implications.
The employer can protect themselves against eventualities such as these however and mitigate the risk in several ways. For example, by taking out early termination insurance, by charging employees who leave the scheme early or by using some of the scheme savings – all options that can offer some leeway in offsetting the potential costs to the business.
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