Yes, the company pays for fuel and everything related to the vehicle. The confusion surrounding car cash-up in employee compensation plans is illustrated by the following scenario. And judging by the research, the scene unfolds daily in almost every organization. Joe is a Product Manager at ABC Enterprises. His total compensation of $75,000 includes: * $50,000 base salary * $25,000 company car – annual valuation value including operating and maintenance costs, unlimited mileage, FBT, parking, etc. But Joe feels betrayed and growls to his partner and colleagues that the company misses him. “The car is not worth nearly $25,000 – it`s only two liters and doesn`t even have air conditioning.” In his view, the presumed value of the benefit is too high and he believes that the company is trying to make its total compensation appear more competitive than it actually is. He sees it as an opportunity for his employer to avoid increasing his base salary. The company then announced that, in line with its international parent company`s compensation strategy, company cars were being “phased out.” Joe`s base salary will increase to $75,000 and he will have to buy, operate and maintain his own car.
Joe becomes ballistics and demands to meet with the head of human resources. “There`s no way,” he says angrily, “that an extra $25,000 on my salary will offset the cost of buying and operating my own car. And I have to pay tax on the amount in cash. Suddenly, Joe feels that the supposed value is too low. The company cannot win! Multiply the episode by 15 additional employees, and management suddenly faces significant compensation issues, not to mention employee morale issues. And yet, all this can be easily avoided if one clearly understands from the outset how company cars are valued. In the context of the debate on company cars, six central themes must be taken into account:* Perk cars will be phased out. If your company still offers them, chances are it won`t be for much longer – 25% of companies with company cars plan to trade them in the next 12 months*. * Higbee-Schäffler`s research shows that in 1994, 83% of companies offered discounted cars.
In 2003, it was less than 38%. * Companies that still offer company cars are usually the ones where employees need them as “tools”. * Although each organization has different automotive policies, most offer full private use to their employees. * The benefits of the benefit vary greatly from company to company. In some cases, there are restrictions on personal use of the car in order to reduce the cost of FBT and administration. * Employees want more choice and flexibility in their employment contracts. And employers want to simplify wage management. In this context, consider how company cars are included in the employee`s total compensation package. Take this common scenario. The CFO and sales manager effectively perform tasks of equal “size” and value.
Both receive a base salary of $100,000. But the sales manager has a company car to perform her duties. The car is worth $30,000 a year – that`s what it costs the company to offer the benefit, including FBT at 64%. What do you think? Should the sales manager reduce his base salary to $70,000 to make up for it? Should the deemed value of the benefit be less than the actual cost to the business, since it is a “business tool” vehicle? Should the company change its policy and give the sales manager a vehicle allowance to cover only commercial mileage and allow him to drive his own car? Each company will find different solutions to these questions, depending on its specific compensation strategies. But the most important aspect of the topic is this: by evaluating each component of compensation (and communicating the methodology), employers help employees see the true total value of their packages – and employers can identify existing anomalies by comparing total compensation. The evaluation method must be fair, logical and consistent. There are several standard methods for evaluating cars. Rational and emotionless decisions can then be made to avoid injustice and angry employees. Vehicle allowances are another option to help employees cover the cost of operating business-related vehicles. The choice between cash and the car – 34% of companies do it* – is seen by many as a win-win situation. It is cost neutral for the company and offers flexibility to employees.
This tells you that if a company wants to include a company vehicle in your compensation plan, it is the same as an equivalent job that earns you an additional $8,500 per year without a vehicle. This assumes that the company allows you to use it personally and that it covers fuel, insurance, maintenance and repair. If you take the $15,000, does the company still pay the fuel costs? Or is it up to you? For what it`s worth, I had a few company cars, and once I had the choice, I took the salary. I bought a new car, financed by the salary increase. Once I paid, I had a three-year-old car with low mileage and I still had the extra money coming in. I tend to drive very low mileage (6-8,000 km per year), so the value of a company car is lower than most. Edit: The factual advantage was that I could get the car that suited me, with the specifications I wanted (a company car I had didn`t even have a radio, that was a while ago). If you are satisfied with a more modest car, it may be worth it, but you have to be very careful. It doesn`t take much to ruin your cash flow. The question you need to ask yourself is: “How much is it worth a year for me not to have to finance my own vehicle?” With a company vehicle that an employee can also drive for personal use, the driver saves considerably. Insurance will likely be around $1,250 per year, plus $600 for maintenance, $500 for tires and $180 for the WOF/Rego.
That`s $2500 before you`ve even considered the cost of buying the car or paying interest on the financing – and all of those costs should come from their after-tax income. Even without a fuel card, a car significantly improves a salary package. In my role, I have the option to take a company car with full personal use or a taxable car allowance of 22k (call it 15k cash in hand). I did the logic for myself and chose the vehicle provided by the company. A good rule of thumb is to value a company vehicle at $8,500/year. This assumes you don`t have to pay for fuel, insurance, repair, maintenance, etc. For each of these points for which you are responsible, you must subtract from this number. It depends on the contract, but definitely worth a look, I`m just trying to note two offers. You have a lower salary, but a fully used company car. I can choose what it is, but it will be new at the beginning of the 30k range.
All fees are paid on it, insurance, fuel, etc. I would use it as my main family car. There is private parking. Commercial tool vehicles Many organizations have established specific criteria for determining the need for tool vehicles to minimize the risk of a return to status-based vehicles. These usually refer to roles that require significant travel, say more than 12,000 kilometers per year, and where the nature of the role requires it. To reinforce the mindset shift from benefits to manufacturing tools, the trend is to mark vehicles with the company logo or offer generic makes and models. In order to map the vehicle as part of the remuneration, the “personal use value” is included. This can range from 100 to 25% of the annual cost of the car, depending on the type of work done, the degree of brand, the degree of personal use and the evaluation of the cars by the company.