A lease that is made up of a three-fold agreement between an employer, their employee and a finance company is called a novated lease, often used in car finance transactions. The employer basically agrees to take on their employee’s responsibilities making monthly lease payments to the finance organisation providing a car or vehicle, for the individual staff member to use. This is part and parcel of a salary package arrangement and can be beneficial for both employers and employees.
There are two types of novated lease and it is crucial for both organisation and staff members to ensure they fully understand the ramifications of entering into this financial agreement before committing to any firm decision. Reputable car finance companies in Perth and Melbourne are extremely helpful, not only in explaining the process and requirements of all three parties involved, but will take on the administration and coordination of this agreement, which saves the employer a lot of time and staff resources.
The two types of novated lease are the fully maintained and the non-maintained lease. The fully maintained novated lease is one that includes the operational costs of the car or vehicle as part of the salary package. The operational costs are managed on your behalf and are deducted from the salary package along with the relevant Fringe Tax Benefits or FTB. With the non-maintained lease, the running costs and maintenance of the car is the responsibility of the owner and just the lease rental plus pertinent FBT is taken from the salary. Responsible car finance companies will discuss each type of loan available, to ensure you fully understand your responsibilities, before making the right decision for your individual circumstance.
Benefits of novated lease for employers
For the employer, a novated lease offers several benefits, not least being able to offer a competitive salary package to potential employees, as well as rewarding current valuable staff members. These novated leases can also contribute towards reducing Work Cover insurance and payroll tax because these are calculated on an employee’s gross wages. There is also the bonus that companies don’t find themselves having to deal with a pool of company vehicles when a staff member leaves, because the vehicle goes with the ex-employee along with the residual value of the car. The employer is then no longer required to make the lease payments remaining on the vehicle. Also as the car loan company will deal with the employee directly, in terms of information on the novated lease, this administration burden is not placed on the employer.
Benefits of novated lease for employers
For the employee, a novated lease provides them with a vehicle they can use 100% of the time, with no restrictions on when they can use it, nor on who can drive it. As it is not part of a fleet of vehicles, then the employee can choose the make and type of car. Also as the costs are paid from pre-tax income, this means that this is both a cost and tax effective option for a car loan package. The lease payments are fixed for the duration of the lease, anywhere from one to five years, and if the employee leaves the company then they can take the car with them and agree on another novated agreement with the new employer.
So for increased employee satisfaction and hassle-free motoring, to an employer who will attract the best possible future staff members as well as gaining a reputation as a company of choice, then novated leasing is certainly something to be considered.
Westminster National is a leading finance broker with a range of car finance options for businesses across Australia.
