How do you keep your employees engaged and motivated?
An important part of HR is the retention of employees and ensuring that they are satisfied.
In technology-based organisations, employees will need to be kept interested and provided with benefits and perks to keep them around.
With this emphasis on employee retention, many managers end up making decisions and mistakes that they later regret.
If you’re looking for simple and effective ways to improve employee retention, here’s how you can use novated leasing to your advantage.
It Is Not Just Senior Managers Who Get Company Cars
In the past, company car type of salary packaging was associated with senior management. This has been changing with the President of the Australian Salary Packaging Industry Association stating that organisations are rolling this out for lower-level staff as well.
Why?
Granting employees’ access to company cars is treated by the ATO as a ‘non-cash benefit’. Also known as a fringe benefit. These benefits are provided to employees and subject to
Fringe Benefits Tax (FBT), which is currently set at a flat 47% of a benefit’s ‘taxable’. While this is a higher tax liability than the average tax rates, if the taxable value of company cars can be reduced to nil (based on usage and additional contributions) employers may pay zero FBT.
In this respect company cars can add extra value and incentives to employees without additional taxation requirements on the part of employers.
As a result, company cars are not just found in the construction industry or in the garages of upper management. More and more, novated leasing is being used to retain skilled talent.
Here’s how.
The New Rules
Rules from decades past placed tight restrictions on what could be salary packaged. This meant that the days of golf club memberships and school fees were a thing of the past. Australian governments have continued to tighten the rules regarding this. This has resulted in the most common items being cars and pre-tax superannuation contributions. There are some work-related memberships that are included.
According to the architecture experts at All Image Architects, there are some exceptions to these tight rules. They explain, “the exceptions are for people working in aged care, public health, non-profit organisations and charities. Depending on their job category, these staff members can package $9,000 or $16,000 pre-tax income into almost anything they want. The exemptions were introduced to help those working in the cash-strapped health and charity sector.”
The Benefits of Novated Leasing
Staff Benefits
The savings that you can get with a novated lease are worth exploring as a car owner. You will not have to pay any GST on the purchase of the car because the leasing company is buying it on your behalf. No GST on the initial car purchase price can be a great saving.
You will also pay no GST on the running costs of the vehicle which has been packaged into the lease. There will be no GST paid on the insurance, fuel and registration. The overall running costs will generally be paid through your pre-tax earnings.
According to osteopath Nikole Grbin who has studied ways to increase employee engagement and retention “you also get access to newer cars at a more frequent rate. A novated lease will only have new or late model used cars accessible. The lease also allows you to change your car every 3 to 5 years.”
Business Benefits
Many of the benefits of a novated lease will be enjoyed by the employee. This does not mean that there are no benefits for the employer, depending on the situation. The first is a reduced CAPEX because more employees are driving personal vehicles. This will free capital for other projects.
There is also a reduced risk because your staff are driving vehicles that have the latest safety technology. You also benefit from greater staff appeal because novated leases are an attractive benefit. This also helps you to retain staff.
Another benefit is the reduced FBT (Fringe Benefits Tax) because you can shift cars from the balance sheet of your business. This is where you will pay Fringe Benefits Tax.
How To Use Novated Leasing As A Retention Strategy
Salary packaging will not generally form the centrepiece of your staff attraction and retention policy. However, it will be an important element and you need to consider this. This is due to it being important for employee value proposition and overall retention. It will also add value to your business without coming at a cost.
According to the NLP experts at Mindset Mastery, “if you run a small business, you will find that once you have set up the system to provide a single employee with a salary package, the administration will be easier. This will make it easier to roll out the benefit to more workers. A lot of businesses are offering salary packaging where it was too hard to do so in the past.”
Salary packaging is now less about the retention of top executives and this is due to the design of the tax structure. When a salary is more than $180,000, the benefits will become less proportionate.
Superannuation In Salary Packaging
All workers in Australia already get a compulsory superannuation contribution of around 9% which is employer funded. When it comes to salary packaging, there is an option to have more contributed to their funds from their pre-tax income. For people on a higher salary, this can be a good strategy as the contributions are taxed at 15% instead of the marginal rate.
A lot of lower-paid employees will not make additional contributions because they will not get a tax benefit and cannot often afford it. As people move through life, they will start to think about putting more into their super to fund old age. When children leave home and the mortgage has been paid off, there will often be an increase in salary. This will leave more discretionary income which could be added to your super to prepare for retirement.
