The benefit of a company car is exercised to a considerable extent by employees in the United Kingdom than most other countries. Almost two million employees avail this assistance in 2000 (IRS 2000b, p.2). It is seen that when an offer is made between cash and a company car, the employees mostly go for the latter (Smith 2000a, p.161). It gives them a sense of belongingness and importance to the company. Often overseas managers are of the view that posh and high-end cars tend to attract and maintain first-rate managers. In terms of benefits given by employers, company cars are taken to be the next most crucial employee benefit after pensions provided by 90 percent of large and medium enterprises. It is a good way to retain talented employees by offering them with a good reason to stay.
However, there are a various essential reasons that make company cars a necessity for its business. It may often be necessary to enable an employee to work out of her/his regular job requirements assuming that not everyone may own a dependable car. It is a crucial part of employment for some, to travel on a comprehensive and periodic basis and to have a car for the purpose can be beneficial. The upper-level managers like to be seen walking out of the latest models of cars. Also, it is a need to provide senior executives and sales representatives with posh cars to impress potential clients. Moreover, the impact created while travelling on a company car may be beneficial for the business to gain good clientele. Another reason is it can be counted as a cost- efficient measure for people widely travelling on business purpose each year. For someone travelling 30,000 miles at 30p per mile, the reimbursement may cost up to £9,000. Providing a company car to the staff is often cheaper than paying an acceptable mileage allowance to use their own vehicles.
Although, most owners of company cars do not belong to either of the mentioned categories and their car allowances are an expected part of the overall pay package for senior and middle managers, thus, signifying achievement of a specific status level. As people move up the corporate ladder, it becomes essential for the company to provide a car to mark the importance. On upgrading to a more expensive car, in an obvious way shows the company’s approval. However, the effect is opposite when an employee is downgraded to a cheaper version.
A historical reason for the importance of company cars in the UK is they were a crucial tax- efficient benefit prior to 1994. A car was seen as a real incentive than any other cash benefits. People usually preferred using a company car for all purposes rather than buying one out of the taxed-income.
However, the present scenario tells a different story as employers are encouraged to lease or purchase environment-friendly cars as per the recent tax implication introduced in April 2002. Prior to which, company cars were taxed depending on the number of miles driven fora business purpose and the tax paid by the owner annually was equivalent to the percentage of the car’s list price. The more miles a car travelled on business, the less tax was to be paid and also for people who drove old cars, substantial discounts were offered.
Nowadays, the tax is to be paid on the basis of carbon emission or the size of the engine, and people driving a greater number of miles or using an older car are given no reduction. For people driving mostly as part of their jobs, using small cars or large ones with lesser carbon emission, there is a substantial incentive. Cash equivalent to the tax payable on the car are given out by most employers (IDS 2002b, p.1). However, many tend not to take these up alternatives as there are hardly any tax benefits that come with using a company car. One reason is that the company cars are comparatively costlier and do not make up by purchasing one from their own income and most importantly they can save up on extra costs that come along with the car such as insurance, repair, maintenance and service costs, etc. As a result, when employees are given the option to choose, they tend to go for a smaller car thereby increasing the cash incentive in their pay scale.
Therefore, the only area of concern when using cars as an incentive for employees is the choice to buy or lease. Both the options come with advantages as well as limitations. On the one hand, purchasing a fleet of latest high-end cars can incur a substantial cost for the company but prove beneficial in the long run. On the contrary, with leasing the entire deal depends on the terms and policies of the leasing company. It is only beneficial when the leaser it is a reputed company and at the same time takes care of all the maintaining expenses.
