Company cars out, novated leases in: New money-saving tactic for businesses

Skyrocketing inflation, the cost-of-living crisis, and labour costs are persuading Aussie businesses to employ new tactics to save cash.

According to a report from Small Business Loans Australia, 70 per cent of Australian businesses and 82 per cent of small and medium-sized enterprises (SMEs) with a total of five or more employees said they would swap company cars for novated leases.

Following the reports that the biggest concern for 85 per cent of Australian businesses is soaring business costs, an overwhelming number of companies are resorting to introducing and encouraging novated leases.

In this case, the novated lease acts as a salary package offered by businesses that allows employees to lease a new or used car that they pay off through their pre-tax wages.

The responses across Australia were somewhat similar, with NSW, South Australian and West Australian businesses stating they would most likely encourage staff to opt for novated leases, at 77 per cent. Queensland, however, not so much, with only 42 per cent preferring company-paid vehicles over the novated lease arrangements.

The cost-saving tactic is a favourite of medium-sized businesses, as it is being embraced at an extremely high rate, with 84 per cent of companies with 200 or more employees stating they would opt for novated leases.

In regards to the actual employees to whom the arrangements would apply, almost seven in 10 believed their teams would love to have a car through a novated lease arrangement for both their work use and personal use. South Australian businesses especially were very optimistic that their staff would oblige with the offer, at 77 per cent.

On the other hand, once again, Queenslanders were less enthusiastic, with just 58 per cent of businesses believing that their staff would be happy with the proposed arrangements.

Alon Rajic, founder and managing director of Small Business Loans Australia, stated: “Novated leases really are a win-win for SMEs and employees: with 69 per cent of all survey respondents saying employees would take up novated leases if they offered the option, we can see the widespread appeal.”

“Given the growing concern of Aussie businesses when it comes to rising costs, it’s also small surprise novated leases are on the rise – particularly for larger companies where the switch from company cars could save a larger operation hundreds of thousands of dollars.”

If more employees get behind this trend, it could definitely come to fruition and become the status quo. Rajic believes that considering the costs of purchasing a new car in 2024, this arrangement is a win-win for employees and employers.

“And for employees, this is almost equally enticing. The price of cars skyrocketed over the past few years as pandemic-fuelled supply and demand issues (some models saw a 60 per cent increase between 2020 and 2023). It’s easy to see why novated leases offer a cheaper alternative than buying a new car outside of a salary packaging arrangement,” concluded Rajic.