4 Oct 17

Experts highlight concerns over cash allowances

Changing corporate and employee attitudes towards the true benefit of a company car is raising the profile of private leasing and cash alternatives, according to industry experts.

The International Fleet Managers Institute and Fleet Europe jointly hosted a webinar last week to discuss the issue.

Nicolas Stockmans, senior tax manager, BDO, said, “Up to now the company car has been considered as a must in a compensation package.”

However, a rapidly changing tax and environmental landscape is challenging this approach, and prompting a shift from company cars to corporate mobility solutions that involve pool vehicles, public transport, taxis, Uber, bike sharing and even walking, added Stockmans.

“The problem is that not a single European country has tried to find a beneficial solution in this area. In every country cash allowance is treated as salary for tax and social security purposes, and consequently the costs remain very high,” said Stockmans.

“For the mobility budget it’s very complex. It’s necessary to apply a specific tax treatment to each component of the package. It’s a huge extra burden on fleet managers.”

The interest in cash alternatives to the company car has two drivers, said Marc van Eck, senior business development manager, ALD International. Firstly, companies are looking to reduce their fleet costs, and cash allowances offer a way to cap car expenditure and avoid the fixed overheads and long term commitment of operating a fleet. Secondly, employees are attracted by the flexibility available in vehicle choice – or not to choose a vehicle at all.

“The younger generation has a different view of mobility, looking for access to cars rather than owning the car itself,” said van Eck.

Cash allowances are simple to operate, and eliminate the risk of early termination and end of contract charges, while also passing the risk of future price increases to the employee, said Thor Konings, international account director, Athlon International.

But he warned that, “If the driver is responsible for paying for service, maintenance and repair, there is a risk that because of time or money considerations, these may be delayed, causing safety concerns for the company. And if the provision of insurance is incorrect for the driver, passenger or load, this could cause safety and liability concerns.”

Konings added that a move to cash allowances went hand-in-hand with a loss of control for employers over vehicle selection, with a potential negative impact on the corporate image and CO2 emissions, depending on the cars chosen by employees.

In contrast, traditional fleet leasingoffers fleets fixed cost budgeting, control, the benefits of the expertise and economies of scale of the leasing company, and the capacity to generate detailed management information on costs and CO2, said van Eck.

Health, nutrition and materials company Royal DSM introduced a personal leasing product for its 4,500-strong Netherlands workforce in 2014, as a means of extending the perceived benefits of a company car to all employees. Within two months, 150 employees had taken up the offer, said the company’s global mobility manager, Daan Bieleveld (pictured above).

He explained that the programme required significant work to create a cost calculator that allowed staff to compare the actual running costs of their own car with a lease car, and that in many cases private leasing proved 30% more cost beneficial than private ownership.

“It even challenged why we had a company car programme because private leasing is so cost attractive and gives us more flexibility than a company car programme,” said Bieleveld.

“But in terms of safety and sustainability we, as a company, would like to have a company car programme in place.”

Authored by: Jonathan Manning