Over the last few years many companies have been caught up in the frenzy of offering company car drivers cash alternatives. Empowering staff to make choices regarding their benefits may seem attractive, but is it always prudent in the case of company cars?

To make my point I will look at two typical employees. The first employee Jack is head of facilities and office based. Jack lives close to the office and is a keen camper. Because of his senior grade he receives a company car, and has a fairly wide choice of models.

If Jack is offered a cash alternative the company must consider what impact Jack’s decisions may have on the business. Instead of a new car, Jack has always wanted to run a 4x4 and finds a 10-year-old Landrover that will suit his outdoor lifestyle. As Jack never leaves the office his choice of vehicle is irrelevant to the company. Jack is delighted to have the ability to choose the way he spends his income.

Our second employee Samantha, is a sales rep who has clients spread over a massive geographical area. Samantha drives over 20,000 business miles a year and has a choice of three company cars. Given a free choice of car Samantha would choose a two seat convertible sports car; it’s no surprise this is not on the list.

Before allowing Samantha to visit the local sports car dealer the company should think about the risks associated with her choice:

• Does Samantha need a car with more than two seats and a large boot?
• Can she be trusted to buy a car that is reliable; can she afford any repairs?
• What will happen if she falls behind with the finance repayments?
• Will she insure the car for business use (think corporate manslaughter)?
• What image will this car portray to her clients?
• Does the car comply with health and safety guidelines?

Whilst Samantha may be a sensible lady who has considered all the risks and practicalities, she has 150 colleagues who all have their own individual agendas. Will they be as prudent?

It is only human nature that people who spend long periods in their cars will want some choice, especially when they are taxed for it. Many drivers will choose cars for either financial or emotional reasons without full consideration of their circumstances. It may seem hard to exclude people from having cash and a complete free choice, but a good employer will remember he has a duty of care towards his employees. If Samantha hasn’t thought what the effect of driving 5 hours a day in a tightly suspended sports car will have on her back, this could end up being a problem you have to sort out. If she can’t afford the insurance and drives anyway, then has a major accident whilst on company business the implications could be horrendous. Is a sports car the right image for the company?

Obviously the more groups a company analyses the more accurate the results will be. However the cost of doing the analysis and communicating the options to staff will need to be taken into account.

The previous article in this series covered splitting the drivers into manageable groups. When it comes to deciding who should get a cash alternative this becomes essential.

It may be that the company is happy to allow some sales staff or other essential car users to buy and run their own vehicles subject to some conditions. For example you may choose to allow senior grade sales staff to buy any new 4-door car, but the exact choice has to be approved by their line manager, whilst new joiners and junior grade drivers have to take a company vehicle.

Company cars may be regarded as a headache, but they do give a business control over very expensive assets that have many potential risks. Getting rid of company cars does not free you from these obligations. It is therefore vital that if you offer cash the terms and conditions are in writing and cover any area that may have an impact on the business.

In the next instalment we will look at the financial implications of giving a cash alternative from both the employer and employee positions, and the balance between paying mileage rates and extra salary.

David Rawlings
Senior Manager
Deloitte & Touche