Car salary sacrifice: An employer guide

If you’re wondering how to offer car salary sacrifice through your company, you might’ve heard about novated leasing.

Your go to guide to novated leasing

A novated lease can offer huge savings for employees, so there’s a good chance you’ve already been asked about it by your staff. This is your go-to guide to novated leasing – what it is, benefits, considerations, and how to become an employer of choice that offers car salary sacrificing.

Why offer novated leases?

A novated lease offers employees the ability to pay for a car and all running costs out of their pre-tax income. Novated leases appeal to all employers, regardless of size, as they are an easy way to offer employees salary sacrificing on a popular (and high ticket) item.

Unlike standard car loans, which draw from your staff’s post-tax income, novated leases allow lessees to tap into their pre-tax income and reduce the amount of income tax they pay. There are other benefits too: the lessee will avoid paying GST – on the car as well as running costs – and some novated lease providers also offer fleet (wholesale) pricing. These days, the alternative – buying a car outright – is waning in popularity, as it involves an extremely high up-front cost on a depreciating asset, something that savvy Millennials and Gen Z’ers seek to avoid.

You can probably start to see the huge value to employees looking to save costs, especially on their biggest expense (after accommodation). They might need their car for work, or they might be seeking a pay bump to purchase a car they have in mind and the standard salary budgets don’t have the room, which is another incentive for you to see if you can offer a salary sacrifice car scheme to your team. So, are there any risks, and if so, what are they?

A few points to consider

Novated leases are safe for employers and don’t come with risks, simply some considerations .

Liability

The financier agreement is signed by the employee (which specifies non-liability of the employer). There’s no liability to you, and the employee retains the liability to pay the lease if they leave too. You simply agree to make payments on the employee’s vehicle from their pre-tax income whilst they are employed by you.

Fringe Benefits Tax

You should seek a provider that strives for $0 fringe benefits tax (FBT) liability for your company and knows how to offer the most cost effective FBT solution.

A good provider will:

offset any FBT liability you may have
make sure everything is clean, accounted for and managed
provide FBT reporting

Cost to you

With a good novated lease provider, novated leasing is a cost neutral process for employers – that is, it won’t cost anything to offer. Some providers may include management or other fees, so ensure you check this before selecting a provider.

What happens if my employee leaves?

The novated lease lives with the employee, so should they leave, they take the novated lease with them, to pay themselves until they find a new employer. You don’t need to transfer the lease to their new employer.

Will I be locked to one provider?

The short answer is – not if you choose the right one. Some providers may try to tie you into an exclusivity deal so that you only use them. However, there are great providers who will never send you a lock-in contract and won’t ask you to sign anything other than the basic obligation to make payments for an employee as part of payroll, and that’s it. If flexibility is a concern for you, make sure you find a provider who clearly leaves full control in your hands.

With a good provider, the service should take almost no time and cost you nothing at all.

As a novated lease employer, you have two simple obligations:

You’ll need to connect to a novated lease provider. There’s a bit of admin and a small amount of time to set up a new provider (more on this next), however a good novated lease provider will make that painless, and they’ll also offer a reliable point of contact for any questions or issues to make ongoing management easy. Though in most cases it’s just ‘set and forget’.
You’ll need to make payments to the novated lease provider on an employee’s behalf out of their pre-tax income. Although, that’s just the basic salary sacrifice process.

How to set up novated leasing

Setting up novated leasing is surprisingly simple:

You choose a novated lease provider. There’s bare minimum paperwork with a good provider – you only need to sign a one-page novation agreement, which simply says that you’ll agree to make payments on your employee’s behalf while they’re employed with you.
Your novated lease provider will provide the pre-tax and post-tax deduction to enter in your payroll system (e.g. MYOB, Xero, etc). You simply enter this and you’re done.
Payments to the novated lease provider on your employee’s behalf can be direct debit or EFT, and can be set on the same date the pay cycle happens, for simplicity. If you choose direct debit, you only need to sign the usual direct debit terms and conditions. That’s it.

We’ve helped all kinds of businesses get set up with novated leasing

The bottom line

Novated leasing can be a very positive contribution to company culture – no doubt your HR Manager or People & Culture Coordinator would love the addition for their onboarding process. Given the savings, in a way it’s like being able to give staff members a significant pay rise without spending a cent. With the right provider, it’s simple to set up with almost no paperwork, and it’ll cost you nothing out of pocket. Most importantly, your employees will thank (and possibly, love) you for it.

We get SMEs

We help organisations of all sizes, including government bodies and corporations, but we particularly delight in the chance to help SMEs to optimise their offering. As we know, salary sacrificing – and particularly novated leasing – can make the world of difference to smaller companies building a culture and striving to improve their team’s experience. We’re going through the same thing, so we get it.

We also love hearing from company founders and reps like you – we’re here to answer questions, explain the process and generally make things happen. So give us a call and let us help you get set up. Or, if you’d prefer, you can request a callback at a time that suits, or send us a message below.

Get in touch.

Our team would be happy to answer any other questions you may have about offering novated leasing to your employees. Let us know how you think your business could benefit and we’ll work together to personalise a solution for you.