Business Essentials: Will workers wonder if it's worth it when the company BMW has gone?

An estate agency has ditched its fleet because of the cost. But it fears the reaction of potential recruits

The three most important letters for the employees of estate agents are BMW, according to David Tate. "They all want one," says the co-owner of Davis Tate, which has eight branches in the Reading area and a workforce of 55. "The problem is that when you provide them for your staff, they just get caned on tax."

It doesn't even help if companies such as Davis Tate get their BMWs - or any other type of car - second-hand. "Like a lot of small businesses, we have never bought brand-new cars as part of our company scheme because they suffer from such quick depreciation. But the tax is still calculated on the original value of the car. So if you buy someone a three-year-old Volvo, you still pay tax as if the car is new," Mr Tate says.

Getting a poor deal on tax was not the only reason he decided to ditch his firm's company car scheme: "We are not structured enough to say to our staff, 'Have this car for two or three years, then we'll sort you out with another one.'" So he has introduced a car-allowance scheme instead. "It was largely as a result of pressure from employees themselves," he explains.

Consequently, Davis Tate has gone from having a fairly big company car fleet to practically nothing.

"I really want to know if I've done the right thing. In other words, is an allowance scheme a good enough perk for me to continue to attract the best employees?"

He recalls a time when people would move jobs simply to get a better car. "I did it myself when I was younger," he says. "Today it seems to be different, and our experience is that our decision hasn't been a barrier to recruitment. But I'd like confirmation that is correct. I don't want to lose out on talent."

Mr Tate is also keen for suggestions on how his staff can get the best value from their car allowance. In particular, should they buy or lease? "And if they lease, how long should they do so for?"

He has decided to structure the new scheme so that the amount of money staff members receive for their allowance depends on their seniority. The sums will range from £300 to £500 per month.

"It seems that staff prefer the flexibility," he comments. "For example, we have two girls in our Reading office, both of whom spend their whole allowance on having convertible Minis. Other employees, who perhaps have more family commitments, use only half their allowance and put the rest of the money into household expenses."

Mr Tate would welcome any further ideas for ways of keeping his staff happy.

www.davistate.com

WHAT THE EXPERTS SAY

Charles Cotton, Reward and Employment Conditions Adviser, The Chartered Institute of Personnel and Development

"Has Mr Tate made the right decision? From a business perspective, the company car can send important messages to clients that will affect how they perceive the organisation and its employees. But this has to be balanced against the cost to the firm of providing a fleet.

"With allowances, he also needs to decide whether employees can spend the money on any car irrespective of age and type, and what effect this may have on the brand.

"There are other issues to consider. Is the incentive big enough to attract the best? By providing an allowance and letting employees go off and make their own arrangements, is the company setting itself apart in its labour market? This information can be gleaned by asking people at exit interviews and job interviews."

Ashley Jones, Managing Director, Proleasing

"An allowance can be a huge attraction when joining a new company, giving people the flexibility to choose their ideal car. But employees should be aware that the allowance will be taxed at the prevailing rate and that they may incur costs for maintenance and servicing.

"Companies such as ours can finance new and used vehicles, tailoring the package to employees' requirements - what they wish to spend, their annual mileage and whether maintenance and insurance need to be included.

"A personal contract plan [PCP] could address these cost implications and in some circumstances offer a great alternative to the company car. A PCP provides a fixed monthly rental, and at the end of the contract term the car is handed back or the individual has the option to buy."

John Lewis, Director-General, The British Vehicle Rental and Leasing Association

"Well-structured car schemes can work to everyone's benefit. I say 'well-structured', as this is vital to satisfy all objectives. Normally, these would be to reduce the tax burden on the employee and reduce costs for the employer - not quite incompatible goals but often hard to satisfy.

"And remember, where a car is replaced by a pay increase, the individual will be assessed at their marginal rate, which is likely to be 40 per cent.

"There are also potential health-and-safety issues. The car, when used on business, is an extension of the workplace, subject to the same regulations, and the employer is liable for any breaches. Privately run cars, whether in a structured scheme or not, can be difficult to manage in this respect and Davis Tate should check its potential liabilities."