Tips: What Factors do You need to Consider when Offering a Cash Allowance Alternative?
Have a clear strategy. Be clear about what you want to achieve. Is your company trying to save money, offer more choice, or simplify administration?
Understand your fleet. Gather data on numbers of car users, their level in your organisation and their business mileage. Add up all the associated costs of providing company cars. Note: there may be hidden costs in management and administration time.
Decide on eligibility. Many companies do not offer cash alternatives to employees with very high business mileage, simply because it can be cheaper to provide the car; it also gives you more control as the employer.
Decide on level of choice. Can your employee choose between a car and an allowance, or will allowances be all that are offered?
Calculate the allowance. You may wish to offer an allowance that is slightly higher than the lease budget, as your employee will take on their own risk and insurance and the additional cost will be offset by lower administration and management time. However, it may be complicated to administer. It’s a good idea to refer to market data on allowances to ensure you are competitive.
Recognise there will be winners and losers. Whether one of your employees is better off with a car or cash is dependent on many variables, such as type of car, business/private mileage, and their personal tax position. To some employees, a company car is a status symbol, beyond its simple financial value, though it needs to align to your organisational culture and values.
Spend time on communication. A good communication plan is the key to success. You can promote a cash allowance as the ultimate flexible benefit.
Limit the risks. Duty of care for the employer when employees travel on business does not go away if you don’t give them company cars. Consider establishing a proper policy for business travel and create an agreement for your employees to sign on grant of the allowance.
Please note that this advice is provided as guidance only. If you need specific advice relating to your requirements, please call Reward First on + 44 (0) 1367 710 618.