HR plays a pivotal role in novated leasing programs. Craig Donaldson looks at the pros and cons of such programs and examines how some companies have gone about successfully putting them in place
Salary packaging has long
been an attractive benefit for
both employers and employ
ees. While the government
has slowly eroded the benefits of salary
packaging for both parties, novated
leases still appeal to organistions and
their staff.
Many companies make salary-
packaged cars available only to senior
managers, however there is benefit in
making them available to all employ
ees, says Petar Ivanovski, manager of
team member services for Virgin Blue
Airlines. “We open it up to all staff,
so it’s not restricted to certain staff
based on salary levels, their seniority or
other factors,” he says. “You don’t
know an individual’s circumstances or
their family circumstances outside of
work, so it may be attractive for them
to have a novated lease.”
At Virgin Blue Airlines, says
Ivanovski, this is determined from a
cost basis with the individual as well as
a tax perspective to make sure that a
novated lease is of real benefit. He
explains that the uptake of the pro
gram within the company has been
about 8 to 10 per cent (the average for
most organisations).
Similarly, Michael Dack, workshop
foreman for Metfit Industries, a sheet
metal fabrication SME in Brisbane,
says its novated lease program was
introduced slowly, beginning with per
manent management staff. “The
groundwork was done well before
offering [the program] to staff and [it]
seems to have integrated smoothly,”
he says.
“We looked into a few different
benefits to offer staff and this was def
initely one of the most economical and
easiest to implement. A novated lease
is quite easy to set up and maintain
from the company’s perspective and
easy for the employee to both understand and
monitor while benefiting from tax savings.”
A larger and more complex novated leasing
program was rolled out at BGC – one of Aus
tralia’s largest privately owned company
groups, with interests in a diverse range of
industries such as residential and commercial
building, contract mining, quarrying, road
transport and insurance.
BGC is a geographically diverse company
with more than 30 subsidiaries, which presented
a unique set of challenges in rolling out its
novated leasing program. Chris Holyday, a
salary packaging consultant engaged by BGC to
set up and manage its program, says there are
some basic elements of success to any such pro
gram. “At the end of the day, ‘what’s in it for
me?’ is what sells,” he states.
“You’ve got to demonstrate tax effective
ness, and then you have to communicate that
effectively. Word of mouth ends up being the
main reason people take it up in the long run,”
he says. There was a healthy take-up of novated
leases within BGC within the first 18 months,
and Holyday notes that participation rates in
such programs improve after a few years
through word of mouth.
Picking a provider
All the professionals HR Leader spoke to
advised companies looking to implement a
novated lease program to do their homework.
Holyday says one of the most important things
to look for is a full service provider. BGC,
whose provider is Direct Salary Packaging, ben
efited as a result of Holyday’s research into
potential providers.
“I’ve dealt with a number of salary packag
ing professionals, and it’s an area fraught with
danger if you don’t have someone who pro
vides a full range of services. If you get this
wrong you could get a lot of staff who have taken up cars knocking at your door com
plaining quite bitterly about the situation and the experience they’ve had,” he warns.
“Get providers to put forward clients for reference – they will, of course, give you
companies that will give them a good rap. So conduct some market intelligence and see
who else they provide services to and speak to them.”
Ivanovski agrees, and says it is also important to have access to a dedicated account
manager in the service team of the provider – something which is made available to Vir
gin Blue Airlines by its provider, sgfleet. “To me that is worth a million dollars, because
it gives you that direct contact with the leasing company to resolve issues and that can
make things easier,” he says.
Most companies will primarily look at the cost of a novated lease program, but
Ivanovski says there are other important factors to take into account. “Cost is relatively
the same across all novated leasing companies,” he explains. “People may tell you dif
ferent, but there will always be margins and different variances. For me, it’s also impor
tant to look at things such as service, access for staff, reporting, admin for FBT and so
on. You need to take all those things into account, and we’ve learnt that over time.”
Advice from the learned
In order to communicate the benefits of a novated lease program, companies first need
to have a thorough understanding of them. As with any contract, Dack says it is impor
tant to get across the details of the program, which in his case was made easier through
assistance offered by its provider, FinCar. “The initial set-up was time consuming for the
first novated lease, mainly due to setting it up in the accounting program and under
standing the process, but from then on it was fine,” he says.
“The only advice I can offer – which is fairly basic accounting – is to make sure it’s
set up correctly and keep track of the account periodically, making sure that the correct
payments are made and on time.”
Ivanovski concurs. “Make sure the reporting is right, so when a lease commences,
deductions start on time and no-one is chasing any money,” he advises.
“I always gauge a good benefit by way of complaints. If you don’t have any and no-
one is ringing you with concerns or issues, then you know it’s working well. That’s always
a good measure. You don’t need to go out and ask people; you will get feedback from
relevant staff if it’s not working.”
Holyday’s advice is simple: understand the product. “Some HR professionals really don’t
get it,” he laments. “The successful HR teams are the ones that are very proactive in
wanting to understand all the benefits and downsides, so they’re in a good position to
communicate those to employees.
“You can’t just outsource it and close your eyes to it. You have to back it, and pro
vide a follow-up service to each and every driver. So unless you’re prepared to do that,
then be prepared to wear some agro.”
