The Smart Approach to Novated Vehicle Leasing A White Paper from Smartsalary Smoothly Integrating a Novated Lease into Your Employee Benefit Programs
Executive Summary Situation: Novated Leasing is a key component of an employer s remuneration & benefits strategy Novated vehicle leasing is no longer an exclusive perk reserved for corporate executives, but instead has become a popular and accepted benefit for any employee s remuneration package. A novated lease removes the financial overhead traditionally associated with maintaining a fleet of corporate vehicles by shifting the financial responsibility to the employee rather than the employer. In early 2010, the Henry Tax Review (commissioned by the Australian Government) made several sweeping recommendations to reform Australia s tax system, including revised tax calculations that could impact the fringe benefits tax concessions of novated leases.these recommendations were implemented in the 2011/2012 Federal Budget, making novated leasing a more widely attractive benefit. A new FBT valuation regime will, after four years, result in all salary packaged cars being valued for tax purposes at 20% of their initial cost regardless of the kilometres they travel. The change means that employees driving less than 15,000 kilometres will now find novated car leasing financially beneficial while the savings achievable for employees driving more than 25,000 kilometres per annum will be lower than before but significant nonetheless. Bottom line? Novated leasing is here to stay and can be financially advantageous to all employees - not just high income earners. Problem: Fleet Management Firms Are Not Best Equipped to Support Novated Leases Organisations have traditionally knocked on fleet management providers doors to manage vehiclerelated programs. Unlike a traditional vehicle fleet (where the company either owns or leases a fleet of vehicles), a novated lease is treated like an employee benefit since the car lease is directly linked to an employee s salary. In reality, fleet management firms specialise in asset management (vehicles) while salary packaging firms focus on benefits (one of which happens to be a motor vehicle lease). Solution: Smartleasing Leverages Benefit Systems to Easily Integrate Novated Leasing Many employers in Australia are already using salary packaging service providers to manage their employee benefits; so the idea of shifting novated leasing across from fleet management providers makes sense. By integrating a novated lease program into an existing salary packaging service, employers can manage all employee benefits with a single provider that results in lower costs and hassle-free administrative processes. Smartsalary is a leading provider of salary packaging services, and has always considered novated leasing a central option within its salary packaging infrastructure. Organisations can now utilise a single source for both novated leasing and all of their other salary packaging needs. Benefit: Fewer Admin Hassles, Greater Value Proposition and Maximum Employment ROI By combining their payroll integration software, online resources, call centre personnel, and administrative and information systems under one roof, Smartsalary facilitates a cohesive and extensive option for any organisation that wishes to consolidate novated leasing into their existing employee benefit program. The result of this extensive integrated service approach is an enhanced HR department image. Greater ease of use, smoother operations and lower operating costs result in greater productivity while optimising employee retention and recruitment. 2
A Brief Glance at Novated Leasing For several decades, employers have leveraged fleet vehicles as an attractive benefit for employee recruitment and retention. However the traditional fleet model saw the bulk of operating expenses and taxes borne by the employer and not the employee. The concept of novated automotive leasing was first introduced as a perk for executive management. Because of the tax advantages across most tax brackets, it has now become an accepted benefit for any employee s remuneration package - without the financial burden of the overhead normally associated with traditional fleet vehicles. Novated leasing is a three-way agreement between an employer, an employee and a finance company. Under this agreement, the finance company leases a vehicle on behalf of the employee, who agrees to pay back an agreed amount each month for the term of the lease, (typically between one and five years). At the end of the lease period, the employee has the option of paying out the vehicle s residual value, refinancing the remaining amount or selling it at market value. Funds required to cover the lease payments and vehicle running costs are tax effectively deducted from an employee s salary, thereby lowering their taxable income and increasing their take-home pay. Operating costs including fuel, insurance, registration, servicing and tyres are included in a single payment taken directly from the employee s pre-tax salary. Due to the complexity of novated leasing, employers outsource this function to minimise administration and tax risk while enhancing the experience for their employees. By integrating novated leasing with their existing salary-packaging services, employers could place all employee benefits with a single provider in a lower-cost, hassle-free fashion. This white paper from Smartsalary is designed to answer key questions for organisations that are using or considering adding novated leasing to their employee benefits in a smooth, low-cost and high-value fashion. 3
Questions About Novated Leasing for Organisations 4 When a company considers a novated leasing option for their employees, many questions often come to mind, including: a. What leasing options are available to both employer and employee? There are a number of ways to structure a novated lease. The most popular methods are either a finance-only or fully maintained option. Finance-only: the salary packaging provider acts as the finance broker between a financial institution and the employee. Throughout the life of the lease salary packaging provider makes the lease payments and manages the associated taxes. The employee is responsible for sourcing their own insurance and roadside assistance, stipulating the operating costs associated with the vehicle lease, and looking after the servicing and maintenance. While this seems a simple option, it takes a considerable amount of time and effort for the employee to set up the benefit and requires ongoing commitment to manage the lease. Fully maintained: the leasing provider does all the work associated with sourcing the necessary programs (e.g., insurance, roadside assistance, carbon offsets) and determining the correct budgets for items such as fuel, maintenance and tyre replacement. Most importantly, the fully maintained option gives employees peace of mind that all repairs, service and maintenance are pre-authorised. This option can be considered set and forget, as the provider does all the work. b. What factors should be considered when choosing the best solution provider? Is the provider capable of managing all Fringe Benefit Taxes properly? How detailed are the providers employee communications? Is the provider able to track and report on lease payments coming in and/or going out? Can the provider manage both lease and employee requirements simultaneously? Does the provider have a structured transition process for existing employees with leases? What are the provider s service levels as regards to answering phones, processing claims and response times? How does the provider reconcile each individual vehicle once an employee has left the program? c. What are the REAL and HIDDEN costs associated with novated leasing? Questions that companies should ask include: What financial responsibility does the organisation have to the provider? What are the management fees, processing time and cost of changing providers? Does the provider offer a choice of financier? What is the all-inclusive cost (not just interest rate) to the employee for their novated lease? Does the provider have a competitive source for vehicles? What are the associated insurance and roadside assistance options and costs? How will setup and administrative fees impact the employee? d. Why not go through a fleet management firm for novated leasing? Historically, fleet management companies were the primary source for vehicle leasing. However, since a novated lease is more akin to an employee benefit than a fixed asset, salary packaging firms with infrastructure and support resources not only have the experience, but are better equipped to support the administrative issues associated with this benefit. e. How difficult is it to implement novated leasing within my business? As with any outsourced arrangement, the process requires several steps. It is important to understand the potential pitfalls, fees and options, especially if a change of providers is required. However, once implemented, the subsequent process runs smoothly and efficiently with little direct employer involvement.
The Smart Advantage for Novated Leasing For years, salary packaging has been a proven and cost effective way to help employees pay less tax. Since salary packaging providers such as Smartsalary effectively manage approved pre-tax salary fringe benefits, they are also well qualified to manage the intricate details associated with novated leasing programs. There are seven aspects that make Smartleasing ideal for managing a novated lease: 1. Multiple Financial Sources Smartleasing is a division within Smartsalary, one of the leading providers of salary packaging services in Australia. Thanks to their extensive experience in managing employee salary and benefits packages, Smartleasing is able to work with several funding sources and financial institutions to ensure the employee will obtain the best value when financing their vehicle. Smartleasing will provide the employee with several options, allowing them to pick the best rate and options to fit their particular needs. 2. Superior System Integration Smartsalary s extensive experience working with large organisations means their systems are especially well suited to work with a wide range of HR payroll systems, allowing for a rapid and streamlined integration. 3. Free Administrative Consultation Smartsalary provides free consultation to HR, Finance and administrative departments on all procedures, processes, fees and costs. Smartsalary also provides everything necessary to perform the proper corporate planning in advance of a novated leasing program rollout. 4. Faster Payroll Processing The Smartsalary payroll allocation system automatically manages the payment process, ensuring that benefit payments occur immediately on designated paydays. This ensures a much faster transaction process compared to paper-based fleet management companies. The Smartsalary methodology is not only faster and cheaper, but also ensures happier employees and better employee relations. The Smartsalary payroll allocation system automatically manages the payment process, ensuring that benefit payments occur immediately on designated paydays. 5. Personal Leasing Consultation Once a participating employee has enquired about the Smartleasing novated lease program, a named representative will be assigned to that employee to guide them through the leasing process. This relationship builds trust and affinity with the novated leasing program, freeing the organisation from the costs associated with building an internal support organisation for similar day-to-day program-related issues. 6. Website Resources Smartleasing provides a website with detailed novated leasing information, available to both employees and organisation administrators. This frees the HR/Finance departments from having to build similar online resources to answer basic questions. The Smartleasing website offers a variety of information options including a comprehensive calculator, online chat, product options, and the ability to connect to a live support representative. 7. Driver Assistance Options As part of the novated lease program, Smartleasing provides several benefits which participating employees find especially helpful. These include sourcing the vehicle, a fuel card, roadside assistance membership, comprehensive insurance, extended warranty, and other after market products. 5
Survey: How Customers Responded to the Smartleasing Novated Leasing Program 6 In June 2009, Smartsalary surveyed approximately 1,200 customers across all of their client base via an online poll designed to measure their level of satisfaction with the Smartleasing novated lease program. The main goal of the survey was to better understand: How customers make vehicle purchase decisions How to better communicate the benefits of novated car leasing How customers find out about the organisation, and What the driving factors are behind their choice of finance provider Approximately 559 customers or 48% participated in the survey. Here are some of the key findings: 1. Novated Car Leasing Benefits Customers were asked what they found most appealing about novated car leases and to rank which tax savings on specific vehicle expenses they found most appealing. Results: Approximately 96% of respondents indicated that the most appealing aspect of salary packaging a novaled lease was the savings. As expected, tax savings on lease repayments was the most appealing factor in choosing a novated lease. Tax savings on fuel was the next highest ranked response. 2. Perception of Vehicle Lease Financing Respondents were asked to indicate how they first heard about Smartleasing. Results: Almost 50% of respondents indicated that they first heard about Smartleasing through a referral from friend or colleague. An interesting point to note is that almost 80% of customers who financed their most recent novated car lease through Smartleasing did not consider any other leasing providers. Those who did consider other providers were asked to indicate their main reason for choosing Smartleasing. By far, the most popular reason for choosing Smartleasing was for the convenience of having to deal with only one company for everything. 3. Smartleasing Products Respondents who financed their lease through the Smartleasing were asked to rate how important the featured program products and services were to them. They were also asked to explain what was most appealing about an extended warranty. Results: More than 95% customers found the Smartleasing fuel card most beneficial. Approximately 70% of respondents indicated that they purchased an extended warranty from Smartleasing because it is considered a full extension of the manufacturer s warranty. 4. Overall Satisfaction with Smartleasing Respondents were asked to indicate how satisfied they were with Smartleasing. Results: Overall, the majority of the respondents were happy with Smartleasing s service, and more than 70% indicated that they have or would definitely recommend Smartleasing to a friend.
The chart in Figure 1 illustrates the level of satisfaction of customers that financed their lease through Smartleasing compared with another provider. Customers that used Smartleasing were generally happier and more likely to recommend the service to others. Figure 1: Overall Customer Satisfaction: would you recommend this service to others? Definitely - I already have Definitely Maybe No - Dissatisfied with service No - I don t like to recommend services 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Smartleasing Other car lease The Bottom Line: As novated leasing becomes a larger component employee benefit packages, it becomes necessary for employers to enlist the services of highly capable providers that can successfully support its financial, administrative, and operational issues. These survey results show that Smartsalary s extensive experience in salary packaging generates a better novated lease program, resulting in more satisfied employees and more cost effective, hassle-free HR departments. 7
Concluding Summary The novated leasing benefit has become an important component of the recruitment and retention strategy of today s organisations. It is therefore important that they consider implementing a novated lease program that not only saves time and money, but one that is also hassle - free for employees. In summary, there are three key business advantages associated with utilising the services of Smartleasing, the Smarsalary novated lease program. Elimination of Administration Hassles The Smartsalary approach to novated leasing eliminates invoices by replacing them with a seamless payroll interface. Its easy to use, and ensures smoother operations and lower operating costs. Provides the Best Value Proposition By leveraging their extensive financial resource network, Smartleasing provides customers with financial choices that offer the best value, while eliminating any administrative hassles. Maximizes Employment ROI The Smartsalary approach to novated leasing ensures happier and more productive employees, maximising employee retention and recruitment.
Contact details For more information on the Smartsalary approach to novated leasing, please visit our dedicated website at: www.smartleasing.com.au, or contact us at 1300 665 855. 9
10 2011 Smartsalary