Can an Employer Do a Novated Lease?

Yes, an employer can offer a novated lease as part of a salary package, giving employees a tax-efficient way to finance a vehicle. Novated leases are a popular benefit, particularly in Australia, where employers play a key role in facilitating these agreements. This arrangement involves three parties: the employee, employer, and a finance provider. Let’s break down how this works and the advantages for both employers and employees.

What Is a Novated Lease?

A novated lease is a financing arrangement where the employer makes lease payments on behalf of the employee, using the employee’s pre-tax income. This process is referred to as salary sacrificing and reduces the employee’s taxable income. The vehicle is chosen by the employee, while the lease is arranged between the employee and the finance provider. The employer’s responsibility is simply to make the agreed payments from the employee’s salary.

Benefits for Employers

1. Cost Neutrality: Employers generally incur no extra costs when offering novated leases. It’s a cost-neutral benefit as the lease payments come directly from the employee’s pre-tax salary, with minimal administrative overheads.

2. Attracting Talent: Novated leases are an attractive offering for employees, making the employer stand out in competitive job markets. It’s a valuable addition to salary packages that can boost employee satisfaction and retention.

3. Minimal Administrative Work: Setting up a novated lease is relatively straightforward, often requiring little more than a one-page agreement. Most payroll systems can accommodate these arrangements, meaning minimal disruption to normal operations.

4. No Liability After Employment Ends: Employers are not responsible for the lease if the employee leaves the company. The responsibility for the payments transfers to the employee directly, meaning the employer has no long-term commitment.

Employer Responsibilities

To offer novated leases, employers need to partner with a lease provider who handles the technicalities and ensures compliance with Fringe Benefits Tax (FBT) regulations. Payroll deductions should be accurately managed, and although most providers assist with reducing FBT liabilities, employers should still be aware of their tax obligations.

Conclusion

Offering a novated lease can be a great addition to an employee benefits package. It’s cost-neutral, easy to manage, and can improve employee retention. Partnering with the right novated lease provider ensures smooth implementation and compliance.

Thinking of offering novated leases to your employees? Get in touch with us today to explore how we can help you set up a hassle-free novated leasing program that benefits both your company and your team.