Managing a Fleet for Non-Fleet Managers
A Guide to Help HR, Finance and SMEs to Manage Fleet More Effectively
This information is designed 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’s a cost second only to payroll for some companies and once which needs as strong a strategy, this paper is designed to help you ensure 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. The ‘company fleet’ is, in essence, vehicles owned or leased by the company for employee use in order to carry out their day to day job. However, in the UK it is much more than that. In the 70’s employers first used cars to recruit talent, to overcome set pay rules imposed during hyper-inflation, 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, with huge potential benefits that go way beyond just transporting staff, but huge costs and even potential legal issues if you get the strategy wrong.
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, but as companies and transport evolves so should your vehicle policy.
Most companies have a need for 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 whether it be goods or people you have to choose appropriate vehicles, but they don’t always need to be permanent. If vehicles are likely to be used for more than 8 days a month we’d always suggest you buy or lease, you’d be amazed how even specialised vehicles can be sourced cost effectively.
All employees need vehicles for everyday use, even if they are just driving to/from work and you may be surprised to know you can help with this. The best solution again depends on utilisation;
No work use – Have you considered a salary sacrifice scheme? It costs you nothing and has huge benefits to recruitment, retention and provides a healthy boost to the green credentials held by your fleet.
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 which companies like us can arrange for you or worst case letting employees use their own car. The latter however can be expensive for you and the employee and is fraught with duty of care issues, see our grey fleet section to learn more.
High Mileage / Essential Users – Anyone covering more than 10,000 business miles a year really should be in a company car. The car should be ‘fit for the purpose’ so lumbar support, adequate room and sometimes a sat nav will be required.
Other considerations – Will you look at a compromise between work and own use? For example, do some employees needs 7 seaters? Would these be practical for company use? Do you want to allow 2 doors? If the team need to pick up customers these could be problematic. Should you set a max CO2 or min MPG? There are many considerations to take when sourcing vehicles suitable for company use.
Loosely, 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 must be reflected on the balance sheet, lease vehicles may not be on the balance sheet and do not tie up cash but can be less flexible if requirements change.
Buying vehicles outright
As the saying goes ‘cash is king’ and this 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 – giving you financial flex especially with low CO2 vehicles which can be written down over much shorter periods. However, unlike other assets vehicles always depreciate, sometimes dramatically, and if the company has other lending it seldom makes sense to buy vehicles as the cost of financing cars is pretty competitive and offers other tax advantages.
Leasing is the most popular way for companies to fund equipment, whether 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, as in what will happen at the end of the vehicle’s life and when will that be
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 so you’re funding the depreciation and interest only. This has a couple of disadvantages, if you’re employees don’t take care of the car then you could incur fees when you return it and similarly if your mileage is unpredictable you will either return the car with less miles, miles you have funded through the lease payment, or with more miles leading to a further penalty. This 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, apart from the fact that the vehicle becomes yours at the end of the contract removing the risk of additional penalties. This does mean; however, you take the depreciation risk. Finance lease allows you to borrow money for a vehicle and pay monthly payments until a future point when a final payment can transfer the vehicle to you. You can also take maintenance contracts to reduce that burden and you have greater flexibility over the final payment. It can however be expensive, it’s very good for funding assets with special equipment, for example a van with specialist racking where 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 couple of days each month it’s often much better value. Vehicles are newer and can still be specialised and the rate includes insurance which can be hard to source or corporates with no claims history. Hire can be arranged through fleet management providers who will have access to the widest possible selection of suppliers, to ensure 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 meeting your duty of care and it’ll often save you money.
Constructing a policy
When you look at vehicle policies, car policies especially you’ll be amazed how political things can become. Often the people designing the policy are not eligible for cars and the negativity of those eligible can understandably frustrate. However, by taking into the account the genuine needs of all stakeholders, employees, employer and customers a sensible solution can often be reached with all but the most petulant drivers. You can’t please everyone all 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/retention but there are better tools for that such as salary sacrifice.
Next consider the mileage and your budget, budgets can be tight but you should choose a car fit for the purpose, putting someone covering 30,000 miles a year in a small hatchback 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, so for example;
Ownership Cost – Set a maximum list price or cost per month to you, you may want to allow employees to have different cars but if they are more expensive make them pay personally for any difference
Running Cost – Set a minimum MPG, a CO2 cap and even 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, to promote more sensible driving.
Consider also how you will handle fuel, pay and reclaim is very popular where employees are reimbursed for fuel use in connection with work at a rate set https://www.gov.uk/government/publications/advisory-fuel-rates
Another alternative is fuel cards where you pick up the tab and the employees reimburse for private use, both have advantages and disadvantages, and both have technology to make the whole process simple. The key thing is a robust process as HMRC are very attentive to the rates and process used and 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.
Do the perfect suppliers exist?
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, but costs may be higher. It’s a compromise, factor in things like if they offer collection and delivery for servicing as this can equate to a fortune in employee productivity costs which will overcompensate for any invoice cost difference. With vehicle sourcing whether you buy outright or lease if you choose one manufacturer for all your fleet this will lead to a significant reduction in cost, however don’t underestimate the impact of this decision. Employees regularly leave due to car choice and the cost of replacing an employee far outstrips the cost of being slightly more flexible in your fleet policy.
Day to day management
A well-run fleet shouldn’t be invasive, but it can be disruptive to your work schedule as tasks aren’t always scheduled. A breakdown, puncture or accident can happen any time. There are many partners who can help with the day to day management and act as a point of call for any of these distractions, if you prefer to handle this inhouse then choosing a good insurer and breakdown provider can remove most of the admin simply by placing a card with all contact details in the car.
Legal and taxation concerns
One of the key areas people can get into quite a serious mess with quickly is tax, company cars are a ‘taxable’ benefit, you must pay a benefit in kind in the form of extra income tax for your team and employers NIC for you. It’s essential you keep accurate records and meet deadlines, around areas from updating the Motor insurance Database to submitting P11d information.
Report and review
The key to a good fleet is good management information, whether it’s just excel or specialist software, be sure to keep a central data source with all the information you need on your fleet. If you outsource this, your partner will often provide this information for you. After that it’s review, regularly. Just like other business areas, fleet never stands still especially regarding the current trends for green fleet and tax changes.
Other Useful Free Resources
Tags : Fleet Management, fleet management tips, green fleet, vehicle sourcing