Providing Vehicles For Your Employees: Options And Advice
It might seem tempting just to toss a worker your car keys and let them on their way, but in reality it helps to have a secure plan in place
Do your staff need to drive a vehicle for company business?
Your business is growing nicely, and you are recruiting more employees, but along with success and expansion there may be the need to provide company vehicles where staff need to travel on company business. Using their own private cars can often be a problem as most people do not have the correct business insurance as part of their car insurance policy. Business insurance is a requirement when driving on company business, even if this is just a trip to visit a client.
You may need to provide your employees with company vehicles for a variety of reasons; the occasional need to travel to clients’ offices, or you may need to make regular deliveries or provide company cars for business development managers, who need to be on the road regularly. Whatever your requirement, there are a few options available to you, each with their own positives and negatives.
What options are available?
Buying vehicles outright may be the right choice if you only need to run a small number, but this can be an expensive option, tying up precious capital and damaging cash flow. It is also a huge risk, as guessing at residual values can be a mine field and very expensive if you make the wrong choice.
Take into account also, the resource needed to manage routine maintenance and any unplanned accidental damage repairs, taxing of vehicles and servicing schedules. This all needs to be accounted for as part of management team’s time. Vehicles will need to be replaced periodically, so replacement cost and depreciation all need to be taken into account.
Commercial fleet leasing agreement
If your requirement is for a larger number of vehicles, say ten or more, there are commercial fleet providers that have leasing agreements for a number of vehicles. If you are prepared to lease more than ten vehicles at once there will be some cost savings as you will qualify as a commercial fleet buyer, this will give you access to the more competitive rates that the fleet incentive programmes have to offer.
Depending on the detail of the fleet leasing contract, the routine paperwork, taxing and maintenance of vehicles will all be taken care of by the fleet management company. Having the vehicle management tasks done for you, frees up management time.
Budgeting and planning should be more straightforward as you know exactly what the monthly outgoings will be from the start. The biggest drawback of fleet leasing contracts, is that they tie you in for fairly long periods of time, leaving you with little flexibility if you experience periods where business is quieter or even the employee resigns leaving you with the bill to pay still.
Flexible vehicle leasing agreement
A third option, which is relatively new is a flexible vehicle leasing agreement, which are available to businesses for both cars and vans. Flexible leasing will have a minimum lease period, usually around three months. Compare this to commercial fleet hire contracts which have a typical minimum period of two years and you can quickly see an immediate advantage. Flexible vehicle leasing may be attractive to small and start-up businesses that need to stay nimble and not overstretch the business finances.
There is not a set number of vehicles that you have to lease, so you can take just one if that is all you need. You may be able to negotiate a better price if you take a few vehicles, but the main feature here is that the contract tie in is for a short period of time, giving you flexibility at fairly short notice.
Other things to take into account are the freeing up of capital from your fleet as you only pay for vehicles when they are needed.
Flexible leasing is a good option where you have a short term staffing requirement, for example for a short term project or seasonal work. New and temporary employees can also be provided with a vehicle quickly, with the ability to return it, subject to the contact period, once it is no longer required.
As with the longer term fleet leasing, routine paperwork and maintenance and servicing costs are all taken care of by the leasing company.
This option is more akin to hiring a car or van, but for a longer period of time than normal. Pricing, will of course be more competitive than short term car or van hire, but more expensive on a monthly basis that a longer term fleet contract.
Other considerations – financial and tax implications for your business
Before you make a decision about which route you are going to take to provide vehicles for your employees to use, it would be prudent to speak with your accountant.
A good accountant will be able to advise you about the tax implications for each of the above options and be able to work out the implications that each may have on business cash flow, the effect it will have on your capital and how each is accounted for on your balance sheet.
This is of course just one complicated decision that you will have to make as the company director of a successful, growing business. Looking at all of the available options carefully, weighing up the advantages and disadvantages and of course seeking the professional advice of your accountant.
Making the correct choice for your business should reduce operating costs, free up management time and allow your business to stay lean and nimble.
Paul Long is managing director of Rent Direct