Managing a Fleet for Non-Fleet Managers: How We Can Help You Out.
Welcome to our white paper designed to help HR staff, finance, and SME’s manage a fleet more effectively. We aim to provide a general overview of the basics of how to manage fleet for non-fleet managers. This paper has been written to help you to devise a fleet strategy for all types of employee needs. It is by no means exhaustive but should serve as a framework for those with little fleet experience; a framework you can follow to ensure success. At the end of this paper, you will find additional resources and contacts you may find useful.
The typical company car costs around £8,000 a year to run. It is a cost second only to payroll for some companies. It is a cost that needs as strong a strategy. This paper is designed to help you ensure that you have a sound strategy, whether managed in house or externally.
What is a Company Fleet
The UK is one of the largest company fleet markets in the world and probably the best established. In essence, the “company fleet” is vehicles owned or leased by the company for employees to use to carry out their job. However, in the UK it is much more than that. In the 70s, employers used cars as a way to recruit talent, to overcome set pay rules imposed during hyperinflation. Since then, cars have increasingly been used as a recruitment and retention tool.
One thing for sure is that the company fleet is a huge part of modern business. Huge potential benefits that go way beyond just transporting staff, but huge costs and even potential legal issues if you get the strategy wrong.
The Differing Company and Employee Needs
When you look at operating a vehicle fleet, you need to devise or indeed revisit the business case. Too many companies still have the same strategy they had 10 – 15 years ago simply because it’s always been done that way. Though, as companies and transport evolve, so should your vehicle policy.
Most companies require company vehicles. However, how that is addressed should be tailored, not blanket. It normally depends on a whole raft of variables, but we’ll concentrate on the 2 main drivers: utilisation and purpose.
If you need to move equipment, it could be goods or equipment with people, you have to choose appropriate vehicles. However, you don’t always need to have permanent vehicles. If vehicles are likely to be used for more than 8 days a month, we’d always suggest you buy or lease. Travelling less than this? Look at hire vehicles, you’d be amazed how even specialised vehicles can be sourced cost-effectively.
All employees need vehicles normally, even if they are just commuting. You may be surprised to know you can help with this. The best solution again depends on utilisation:
No Work Use
Consider introducing a salary sacrifice scheme. It costs you nothing and has huge benefits to recruitment, retention and for the environment.
Nominal Work Use
For occasional work use, you may be better served with:
- A pool car fleet: spare cars you allocate as needed
- Hire cars: companies like us can arrange this for you
- Worst case: letting employees use their own car
The latter can be expensive for you and the employee. It is jam-packed with duty of care issues, see the Grey Fleet section on the website for more info.
Essential Users – Anyone covering more than 10,000 business miles a year should be in a company car. The car should be “fit for the purpose” so lumbar support, adequate room, and sat nav will be required.
Other considerations – These include the compromise of work and own use. Some employees need 7-seaters. Is this practical for company use? 3-door vehicles? Will this be problematic if collecting customers? Should you set a maximum CO2 or minimum MPG on the vehicles? There are many, many considerations.
When you look to fund vehicles, you have 2 main options, buy them outright or lease them. The difference will depend on many things. Owned vehicles tie up cash and have to be reflected on the balance sheet, whilst lease vehicles may not be on the balance sheet and do not tie up cash. However, they can be less flexible if requirements change.
Buying Vehicles Outright
As the saying goes, “Cash is king”, which can be the case with company vehicles. If you’re a cash-rich company, buying outright can give you more flexibility and save you money compared to finance. It can also give you financial flexibility, especially with low CO2 vehicles. Low CO2 vehicles can be written down over much shorter periods. Unlike other assets, vehicles always depreciate, which can sometimes be dramatic. If the company has other lendings, it rarely makes sense to buy vehicles. This is because the cost of financing cars is competitive and offers other tax advantages.
Leasing is the most popular way for companies to fund equipment. Whether it’s a car, a van, or much more expensive industrial equipment. There are several ways to lease and each has its own advantages. It’s important to start with the end in mind: when is the end and what will happen.
Contract hire is extremely established. You hire an asset with the hire rate based on how many miles you expect to do in it. The rate will normally include maintenance and other services, so it’s a great way to fix your expense. However, contract hire means you will never own the vehicle. You’re funding the depreciation and interest only. This has a couple of disadvantages. If your employees don’t take care of the car then you could incur fees when you return it. Similarly, if your mileage is unpredictable you will return the car in one of three states. This is with fewer miles, miles you have funded through the lease payment, or more miles leading to further penalty.
That said, contract hire is a great low-admin, low-cost way of providing vehicles with huge initial outlay.
Finance lease and hire purchase are very similar. The vehicle becomes yours at the end of the contract, removing the risk of additional penalties. However, this means you take the depreciation risk. Finance lease allows you to borrow money for a vehicle. You then pay monthly payments to a point when a final payment can transfer the vehicle to you. You can also take maintenance contracts to reduce that burden, so you have greater flexibility over the final payment. Though it can be expensive, it’s very good for funding assets with special equipment. For example, a van with specialist racking. The fitting would add cost upfront and complexity on return if you went the contract hire route
Hire purchase is very similar to finance lease, except there is no large final payment. You pay the balance down in equal monthly payments. With both, you need to reflect the asset on the balance sheet.
Short-term hire is often overlooked. For companies that only need a vehicle for a few days each month, it’s often much better value. Vehicles are newer and can still be specialised. As well, the rate includes insurance, which can be hard to source for corporates with no claims history. Hire can be arranged through fleet management providers who will have access to the widest possible selection of suppliers. This ensures you get the most appropriate vehicle to the most appropriate location at the best possible cost.
It’s also a fantastic alternative to employees using their own cars. You meet your duty of care and often save money.
Constructing a Policy
When you look at vehicle policies, car policies especially, you’ll be amazed by how political things can become. You could be forgiven at times for thinking it’s a poisoned chalice. Usually, the people designing the policy are not eligible for cars. The negativity those eligible can understandably frustrate. However, take into account the genuine needs of all stakeholders, employees, employer, and customers. Then, a sensible solution can often be reached with all but the most petulant drivers. You can’t please all of the people all of the time, but a common-sense-strategy is an achievable goal.
Firstly, Consider the Job Needs
Some organisations make the mistake of issuing cars to all employees of a certain grade. The issue here is it’s extremely difficult to go back once you have made that decision. We believe the differentiator should be the need for a car. This is based upon the business miles driven and nothing more. Of course, cars can also be great for recruitment and retention but there are better tools for that, such as salary sacrifice.
Mileage and Budget
Next, consider the mileage and your budget. Budgets can be tight, but you should choose a car fit for the purpose. For instance, putting someone covering 30,000 miles a year in a small hatchback. This will not only hamper performance once they arrive but could give back problems. Also consider what your competitors offer, as cars are quite political. We’d recommend you give employees a choice within the limits of the business. For example:
Ownership Cost – Set a maximum list price or cost-per-month to you. You may want employees to have different cars, but if they are more expensive make them pay for any difference.
Running Cost – Set a minimum MPG, a CO2 cap, and for some businesses, encourage electric cars or hybrids. We have a separate guide on this which may help. Also, consider linking mileage reclaim rates to the MPG the employee achieves, this promotes more sensible driving.
How Will you Handle Fuel?
One very popular way is to pay and reclaim. This is where employees are reimbursed for fuel use in connection with work at a set rate.
An alternative is fuel cards. You’ll pick up the tab and the employee will reimburse you for private use. Both have advantages and disadvantages, and both have the technology to make the whole process simpler. The key thing is a robust process as HMRC are very attentive to the rates and process used. Any errors can result in fines.
Lastly, consider day to day use of the car and safety concerns. It sounds harsh, but just because an employee has a licence it does not make them a good driver. Your policy should ensure both vehicle and employee are “fit for the purpose”. So, regular licence checks are a must, as are vehicle roadworthiness checks. Register for one of our Duty of Care webinars to learn more about the intricacies of occupational road risk.
The suppliers you choose may be led by location, cost, or a compromise of both. Local small suppliers tend to offer better service as they value your business more, though costs may be higher. It’s a compromise, you need to factor things in. For example, do they offer collection and delivery for servicing? This can equate to a fortune in employee productivity costs, which will overcompensate for any invoice cost difference. Whether you buy outright or lease a vehicle, choosing one manufacturer for all your fleet will significantly reduce costs. However, don’t underestimate the impact of this decision. Employees regularly leave due to car choice. The cost of replacing an employee far outstrips the cost of being slightly more flexible in your fleet policy.
When you manage a fleet, the fleet shouldn’t be invasive. However, it can be disruptive to your work schedule as tasks aren’t always scheduled. A breakdown, puncture, or accident can happen any time. Many partners can help with day-to-day management. They act as a point of call for any of these distractions. Prefer to handle this inhouse? Choosing a good insurer and breakdown provider can remove most of the admin. This is simply by placing a card with all the contact details in the car.
Legal and Taxation Concerns
One of the key areas people can get into quite a serious mess with quite quickly is tax. Company cars are a “taxable” benefit. You have to pay a benefit in kind in the form of extra income tax for your team and employers NIC for you. You must keep accurate records and meet deadlines. This can be around areas from updating the Motor insurance Database to submitting P11d information.
Report and Review
The key to a good fleet is good MI. Whether it’s just Excel or specialist software, keep a central data source with all the information you need on your fleet. If you outsource this, your outsource partner will often provide this information for you. After that, review regularly as, like other business areas, the fleet never stands still. Especially with the current trends for green fleet and tax changes.
As you can tell, when you manage a fleet, a lot goes into it! Want to get even more clued in? Sign up for a webinar on How to Manage a Fleet for Non-Fleet Managers!