A car policy helps companies effectively manage car use and their employees' car choices. It also contributes to a more sustainable use of the car.
A car policy is a written document that sets out drivers' rights and obligations. However, it would appear that nearly half of all companies employing less than 100 employees do not have one. Transparent agreements with regard to the company car avoid the need for discussions afterwards. This is all the more pertinent given the rising costs of using a company car.
Obviously, a car policy must be consistent with your employment regulations although it doesn't actually form part of the regulations. You can then make changes to it more easily.
What does a car policy cover?
It goes without saying that you need to specify to whom you wish to allocate vehicles and who is allowed to drive them. You also need to state the vehicles' characteristics. The responsibility of the driver must also be dealt with. What happens, for example, in the case of traffic fines, accidents, or stolen vehicles?
It is also important to agree clearly on who has to insure what. An employee can choose to take out additional, optional insurance cover on the vehicle. The provisions with regard to the excess also have to be clarified. A driver must be honest about their ability to operate a vehicle, This applies not only when the policy starts, but also during the remainder of its term. Drivers must inform their employer if and when they are caught driving under the influence, for example.
What about fuel costs?
Here, too, it is desirable to make reliable prior arrangements about who pays for what. For example, the use of the car for private purposes must also be clarified. Private use of a company car is considered a benefit in kind and as such has significant tax implications for the employee. This has been the case since 2012, in particular, when tax reforms were introduced to make private use of company cars considerably more expensive.
Choosing a car
A car policy issue that has gained increasing attention in recent years is the ways in which employees make their car choices. In general, there are three car choice schemes: budget, short list and user chooser.
In the past the choice of car was purely a budgetary consideration. But today there are several other factors at work that are usually more important than the list price of the vehicle or its options. This is why the short list scheme (which narrows the choice to 2 to 5 models) is becoming increasingly popular. The user chooser scheme is one usually favoured by board directors, but it seems that many companies continue to offer it to their lower-level staff members as well. This seems to be standard practice although half of all companies have indicated that they wish to limit freedom of choice. The fewer potential suppliers there are, the more clout you have at the negotiating table. In addition, you also avoid jealous looks from colleagues who have to make do with a less expensive car. In other words, it's a good idea to describe the process of choosing the car in some detail.
However, it's still a balancing act between the interests of the company and interests of your employees. Employees still consider a company car as an important motivating factor. But a limited choice can have a negative impact on the motivation. However, employers' and employees' interests are brought more in line with each other by benefits-in-kind being linked to CO2 emissions.
Improved accessibility crucial for companies
Traffic congestion is a major concern for working Belgians. In fact, it has become such an issue that it is having a severe impact on job satisfaction. Even your retention policy is suffering because of it.
Almost one-quarter (23%) of all employees want to change their job. This is not because they are fed up with the job itself, but simply because they want to work closer to home and reduce their commuting time, according to a study carried out by Securex.
The HR service provider asked 1,671 Belgian employees how long it takes them to travel to and from work. People living in Brussels are especially tired of commuting, Hermina van Coillie, HR expert at Securex, found.
"No fewer than one in three Brussels-based employees are considering changing their job due to their journey to work. This figure is one in four for Wallonia and one in five for Flanders. It also comes as little surprise that people with children (31%) in particular dream of working somewhere closer to home, even if that is not always the magic solution. The study makes it clear that moving elsewhere doesn't always reduce commuting time."
In any case, these are troubling statistics for companies that prefer to see their employees arriving in the morning with a smile on their face.
Increasing travel times
It is not so much the distance that presents a problem to commuters, but the travel time. And it is continuing to increase. On average, Belgian commuters lose up to 54 minutes per day travelling to and from their workplace. Much depends on the means of transport. Commuters who walk or cycle to work spend an average of 29 minutes per day in transit. Driving to and from work can take up to just under an hour. How about the train? The outlook is not good: although public transport is often touted as a congestion-free alternative, travelling by train, tram or bus results in an average travel time of 96 minutes per day. And if we will soon be able to work in self-driving cars (or take part in a car share scheme), the train threatens to lose much of its charm.
You might suggest to your employees that they change their address rather than their workplace. In that case, though, it is probably best for your company not to be located in the city centre. Your newly relocated employee may indeed have fewer kilometres to travel, but that does not necessarily mean that they save any time. An employee loses a total of 61 minutes while commuting to and from their place of work in a Belgian city. The time required is 15 minutes less if located outside the city. The situation is a major cause for concern in Brussels in particular. Around 60% of people working in Brussels spend more than an hour in transit. By contrast, this percentage stands at 21% in Flanders and Wallonia. Of everybody affected by the situation, Brussels residents have the worst of it. They lose more than an hour and a half (95 minutes) per day commuting to and from work. This fluctuates around the 50-minute mark in Flanders and Wallonia.
Emphasis on accessibility
The latest striking figures from the Securex study show that 71% of employees usually take the car to work, while 15% travel by foot or bike and 14% use public transport. If the predictions of the Federal Planning Office prove to be true, Belgian roads will continue to be congested well into the future. In fact, traffic jams are set to increase rather than decrease. On the road again… again… is the deceptively jolly sounding title of a study presented by the Planning Office at the end of 2015.
In a nutshell: if nothing changes, by 2030 we will be waiting in traffic jams even longer than we do today. If the policy does not change, the number of passenger kilometres will rise by 11% by 2030, while the number of tonne-kilometres will increase by 44% (compared to 2012). Road travel will remain dominant, accounting for 87% of passenger kilometres (82% by car) and 70% of tonne-kilometres (66% by lorry) in 2030. Consequently, average traffic speed will continue to fall. During peak hours, we will spend 24% longer stuck in traffic jams. It is not an especially rosy outlook...
Greater flexibility and lower costs thanks to mobility budget
Solving traffic congestion problems will require a broad range of solutions The mobility budget is one of these.
Is there a solution to traffic congestion? Constructing more roads is not the answer, because they will become congested as well before long. How about imposing a toll on freight transport? While this is supposed to reduce the number of lorries on the road, their place will probably be taken by passenger cars. Not only that, but a toll may make delivery vans even more popular than they already are. By 2030, the number of kilometres spent on the road by these vehicles will rise by 43%. The Planning Office estimates that the rise in duty on diesel will do little to combat congestion.
Many experts consider company cars to be one of the main culprits. They believe that the treatment of company cars is far too generous in Belgium. Both the OECD and the European Commission have criticised the tax benefits associated with company cars in our country. "Half the cars on Belgian roads are company cars", people sometimes claim. This is simply not true. The CVO (Corporate Vehicle Observatory) requested the registration figures for the Belgian vehicle fleet from FEBIAC (Belgian Federation of the Car and Two-wheeler Industries):
- Belgium has some 700,000 light commercial vehicles and 930,000 other vehicles (buses, lorries, motorcycles, etc.).
- However, passenger cars actually account for the lion's share of vehicles on the road, at 5.6 million. Of these, 4.48 million belong to private individuals and just 1.12 million to companies and self-employed professionals. It is clear, then, that the latter are not the only culprits when it comes to creating congestion. Abolishing tax benefits for company cars alone will not resolve the issue altogether.
A change of mentality
There is no miracle cure. The solution is like a jigsaw – it has multiple pieces. A change of mentality is required above all else. Perhaps you would like to encourage your employees to choose the most efficient, least polluting and reasonably priced mode of transport for every journey. A mobility budget would make this a possibility in the future. The experts at Arval Belgium, one of the major players in the lease market, are preparing a suitable approach. Els Costers (Sales Director at Arval Belgium):
"The concept is simple. Instead of giving employees a car, parking space, rail pass or rental bike, they receive a mobility budget. This budget enables the employer to set an agreed amount to be spent by the employee on a range of transport options: company car, public transport, bicycle, pool car, etc. The employer specifies the budget size and the means of transport available. The employer and employee also discuss the types of commute that the mobility budget is intended for: commuting to work and professional travel only or private use as well."
The mobility budget has many advantages for employers:
- You are seen as an attractive employer, because you encourage a flexible working environment and you offer your employees freedom of choice and flexible mobility solutions.
- You meet your CSR targets (corporate social responsibility) by stimulating public transport usage and by reducing the number of cars deployed, kilometres travelled and litres of fuel used.
- You lower your TCM (total cost of mobility), because you have more control over your lease vehicles, increasingly pay for use rather than ownership, and reduce administrative burden.
In turn, your employees have more freedom and flexibility when organising their travel. Last but not least, it also benefits the environment. The then Flemish Mobility Minister Hilde Crevits commissioned the Mobility budget works pilot project in 2012. The project showed that employees with a mobility budget decide more often not to use a car in favour of a different mode of transport. Car usage for journeys between home and work fell by 37% among the five companies that tested this system.
The mobility budget is evidently a fantastic system. So why is it not yet being utilised all over the country? Well, proponents of the system are waiting for a new law to resolve a series of legal stumbling blocks, especially with regard to taxation and social security. The bill has already been drawn up. Els Costers:
"Today, it is impossible for an employer to make all modes of transport available to employees. The legal rules are different for professional, commuter-based and private travel, and they also change depending on the means of transport. This makes the administrative side of things highly complex and time-consuming. The mobility budget intersects all of these rules. The new law needs to resolve this. Once it is passed, things can move quickly."
Ready for the mobility budget? Here are a few simple rules to take on board.
To implement a mobility budget, an analysis needs to be made of travel habits and the way in which the organisation functions. This analysis enables you to see which combinations are desirable, feasible and profitable.
Involve social partners when introducing a mobility budget.
The following combinations are now feasible from a tax perspective:
company car and tax-free company bicycle
company car and bicycle allowance
company car and public transport
a smaller or electric car for daily usage with a larger family car for holiday periods. In this case, the benefit in kind must be calculated according to usage.
Focus on maximum flexibility. A package such as Arval Select makes it possible for drivers of lease cars, for example, to use different vehicles depending upon their varying mobility needs.
Vehicle lease companies are also taking on the role of mobility consultants
Vehicle lease company such as Arval Belgium are evolving from pure suppliers into mobility consultants with a broad range of solutions.
What does Arval Belgium, one of the major players in the lease market, still have up its sleeve when it comes to benefiting from the new perspective on mobility? Els Costers, Sales Director:
"We are developing a mobility platform under the name Arval Mobility Link. The platform has three modules. One of these modules is the mobility budget. When this mobility budget's legal framework and uniform tax treatment have been fine-tuned, organisations will need a clear summary of the different methods of transport, prices and journeys.
The second of these is the dynamic lease budget. It is a tool aimed specifically at lease car drivers. Currently, you agree with your lease car drivers on a specific number of kilometres that they are permitted to drive each year, for example 30,000 kilometres. This maximum amount is the same for everyone. If an employee exceeds this limit, they may have to pay for the additional kilometres. If another employee is below this limit, for example 10,000 kilometres, that is unfortunate for them because the salary deduction is calculated on the basis of 30,000 kilometres per year, not on 10,000."
The dynamic lease budget works more fairly. This method is used to calculate the number of kilometres permitted to be travelled per year per employee or group of employees. This figure is calculated based on commuting distance. This means that employees who commute from Limburg to Brussels are no worse off than a colleague who travels from Vilvoorde. An employee who drives fewer kilometres records this in a savings fund, and they can then convert this amount saved into a bonus or different form of incentive. You can impose a levy on employees who spend more time on the road, e.g. 5 cents per kilometre. Employees who car pool receive another bonus. The same applies to drivers who fill up their tank at a cheap petrol station or who adopt an economical driving style.
Els Costers: "We provide the tool and help employers devise an arrangement tailored to their specific requirements. The exact arrangement depends on the targets set by the organisation: managing costs, travelling fewer kilometres, consuming less fuel, reducing CO2 emissions, encouraging employees to take part in a car pool or use other means of transport, etc."
Arval Mobility Link will be rolled out this year. That can happen quite quickly. This is what you need: an arrangement in line with your organisation's targets, a platform on which everything is registered, a black box in the lease car and... an honest employee. After all, the employee has to assign the kilometres travelled to the appropriate category on their laptop or smartphone: commute, professional, or private.
"The black box that we plan to employ for the Arval Mobility Link platform is already in use for the Arval Active Link telematics solution", Els Costers explains. "The device registers the journeys taken by the driver, the speed at which they drive, brake and accelerate, fuel consumption and so on. This can help to make employees aware of their driving behaviour and to encourage them to drive economically, defensively and safely."
Many companies have a relatively limited lease fleet. Nevertheless, they do reimburse travel expenses. The first module under the Arval Mobility Link, the travel allowance module, is designed specifically for employees without a lease car or mobility budget. This tool enables employees' travel expenses to be correctly recorded and reimbursed, explains Katrien Jacobs (business team manager at Arval Belgium):
"In many companies today, reclaiming travel expenses requires a lot of paperwork: employees bring their rail tickets, parking tickets and petrol station chits to the office, where they are then placed in a folder or, in a best-case scenario, entered in a spreadsheet. It can then take months for the requisite amount to be transferred to your employees' accounts. It is not particularly convenient. This tool allows employees to declare their travel expenses online. Furthermore, a link to the organisation's HR platform makes it much easier to reimburse these expenses."
TCO forecasts the real cost of your fleet
Avoid unpleasant surprises by comparing the forecast with the real total cost of ownership (TCO) of a company car.
The total cost of ownership of a vehicle is calculated based on a number of parameters. However, there is often a lack of clear definition of the data included in the calculation. This means it can be interpreted in different ways, which is exactly what could lead to costly mistakes.
Many companies are paying more and more attention to studying, monitoring and optimising the cost of use of their fleets. This is why TCO has become a hot topic, more so than the monthly hire fee. Current practice is to compare the TCO of two vehicles in order to come up with the best choice.
This is usually based on a forecasted TCO or an estimated cost of use, This depends on a variety of factors:
- The financing costs. Financing costs are determined by the purchase price, taking into account the original equipment and extras offered by the manufacturer. Financing costs are always involved in some shape or form, regardless of whether the vehicle is paid for in cash, on credit or through hire.
- The vehicle's estimated residual value at the end of the period of use. The residual value depends on many factors, including brand image, model reputation, the manufacturer's commercial policy and the dynamics of supply and demand when the vehicle is sold.
- Costs of use include maintenance and repair costs, costs of tyres and insurance, registration fee and road tax, costs associated with mobility, such as replacement vehicle, roadside assistance, etc.
- The fuel costs: Current New European Driving Cycle (NEDC) standards make it possible for vehicle use and CO2 emissions to be calculated. This is true in theory only, as the increasing traffic congestion leads to actual consumption being greatly underestimated. By multiplying the NEDC standards by 1.2, you can get a better estimate of the actual consumption. Of course, you can also rely on your own fuel statistics.
Car tax costs are such costs as CO2 contributions and non-recoverable VAT. They are borne by the employer. Some fleet managers add to these costs additional tax costs arising from limitation of the tax deductibility of car costs according to CO2 emissions.
Unlike the forecast TCO, the real TCO can be calculated only at the end of the period during which the vehicle is used. The real TCO also takes the following elements into account:
- invoiced extra equipment;
- additional costs relating to the driver's driving behaviour (fuel consumption, tyre wear and accidents);
- authorised changes to the car policy, including any resulting unbudgeted additional costs.
The differences between the real TCO and the forecast TCO can be quite significant. They can represent between 12% and 20% of the total cost. Such differences can be limited if drivers are encouraged to behave responsibly and if the fleet is managed efficiently.