Employer-provided Motor Vehicles

Introduction:

The employer-provided motor vehicle is one of the most contentious elements of remuneration – largely because of the value of the benefit . As a result it is an area in which we regularly receive enquiries.

The following notes are provided to assist users in understanding how these vehicles are valued as part of a remuneration package.

Note that this explanation needs to be read in conjunction with the Motor Vehicle report which can be downloaded from the survey site. That report details the current valuations for each class of vehicle used in the survey. As these values are updated annually please ensure that you download the report which applies to the specific survey you are using.

Valuing the Vehicle as a Benefit:

In valuing an employer-provided vehicle as an element of remuneration, there are two key principles which are applied:

The MHR vehicle value reflects the value of the benefit to the employee, based on full retail cost, not the cost of purchase or lease of the asset by the employer

This reflects the fact that an individual employee will not have the purchasing power of a major employer, and would probably have to
pay somewhere near full retail value if the purchase is made personally

In contrast, many employers can use their purchasing power to gain significant pricing concessions

This is a financial advantage to the employer, allowing best use of funding, but does not change the value of the benefit to the employee.
The benefit exists because the employer makes the vehicle available for private use, not whether or not the employee chooses to use it for that purpose
The benefit exists, and should be valued in full, even where the employee chooses not to make use of the full distance allowed for in the calculation (15 000 kilometres annually).

Application of these principles ensures that the value of the vehicle is fully recognised within the remuneration package, allowing accurate comparison with the external market.

Using these price ranges, assessments are then made of all other elements of the cost of running a vehicle over a three year period, representing the normal turnover period for employer-provided vehicles.

Note that any agreed reduction in the value of the benefit within the package, either because of purchase/leasing concessions the employer has access to, or because the employee does not fully utilise the provision for private use of the vehicle, will effectively lift the value of the overall package for that employee.

This occurs because a lower value being placed on the vehicle will increase the “residual” Base Salary element of the package; adding the vehicle back in at full value will then lift the total package beyond the targeted level. The example provided in the report available on the RemData website illustrates this.

Categories of Motor Vehicles:

The values of company cars were developed using the approach set out below. This approach is similar to that developed
by the Automobile Association of New Zealand, and in our view represents best practice in the valuation of employer-provided motor vehicles.

Vehicles are first classified into six categories as set out in the table below. Note however that it is the retail price which is actually used to classify vehicles: the descriptions in Column 2 are provided as examples of the types of vehicles in each range only; the retail prices used are updated annually using AANZ retail values.

Vehicle Class	Indicative Make and Model
1	Up to 1.5 litre
2	1.5 and up to 2.0 litre
3	2.0 litre, 4 cylinder
4	2.0 – 4.0 litre, 6 cylinder (Base model)
5	3.0 - 4.0 litre, 6 or 8 cylinder (Executive model)
6	Luxury

Using these ranges, assessments are then made of all other elements of the cost of running a vehicle over a three year period, representing the normal turnover period for employer-provided vehicles.

These calculations are annualised to provide the annual value of the benefit within the remuneration package. As noted above these figures represent the value of the benefit to the employee, not the cost of purchase or lease by the employer.

Assessing Vehicle Costs:

The figures MHR uses are based on AA values for variable rates, plus AA quote for insurance. Insurance rates are based on driver 30 years and over, no under-25 drivers, extra wind-screen cover, and no no-claims bonus.

The detailed calculations for recent surveys are available as downloadable files from the MHR RemData site.

To access it:

Login to the site and select the Reports - Downloadable Reports - Saved PDFs option
Select the survey you wish to use
Then set the Document Group filter to "Commentary"
Click on the PDF icon to download the table

Cashing-up of Motor Vehicles

If your organisation is considering replacing a company vehicle with a cash equivalent and you wish the change to be financially neutral to the employee, the values quoted in the table should be grossed up by the appropriate marginal tax rate.

Method:

Amount to gross up by = Car cost X Tax Rate (rounded)

100 - Tax Rate

Grossed up value = Car cost + Amount to gross up by

A detailed example of the calculation is included in the report available from the RemData website.

Provision of Carparks:

While employer provided car parks are not currently subject to FBT in the majority of cases, many employers prefer to include the value of the car park in remuneration. The following guidelines should assist in determining the value in such cases:

Where the car park is provided to allow an employee to park an employer provided car, there is no remunerative value:
The benefit rests primarily with the employer, as the park is used for parking an employer-owned asset

Where the car park is provided to allow an employee to park a privately owned vehicle, which is required to be available during the day for business purposes (for which a vehicle allowance or reimbursement of costs is available):
There is no remunerative value, as the employee is required to make the car available for business purposes; the benefit lies with the employer.

Where the park is provided by the employer for use by employees on an allocated or “first come, first served” basis, but the car is not required for business purposes during the working day:
There is a clear benefit to the employee
The assessed value of the benefit should be included in the remuneration package.
The value assessed should be based on the annual lease costs of the car park.
Where the car park is on company premises, for which no additional costs are incurred, the value should be based on local commercial long term parking costs.