As budgets squeeze, one of the first areas that many companies look for cost savings is the company car fleet. It is often tempting to remove the unpredictable cost and admin burden of running the fleet and simply replace it with a fixed cash allowance.

This may appear to be an effective way to freeze the budget and remove the admin costs, but it exposes the company to risk. It makes the very big assumption that employees will spend their sudden increase in salary on a suitable car, but there are no controls over how an employee spends their cash allowance.

In reality, staff may choose to buy a vehicle that is wholly unsuitable for their job, or they may fail to adequately maintain or insure it for work purposes.

The new Corporate Manslaughter Act considers that a car used for business (however it is funded) is a place of work. Once ‘car allowance’ appears on an employee’s payslip, liability falls on the employer. If the cars are not found to be ‘fit for purpose’, are poorly maintained or the drivers have not received adequate instruction or training, then companies will be vulnerable to prosecution. Strict guidelines already exist for drivers on company business and employers are expected at the very least to have a suitable policy to demonstrate their duty of care to employees.

The lack of control over how a cash allowance is spent also has implications for the environment. Staff may be tempted to buy older vehicles, which they believe will be cheaper for them to run, but these vehicles will undoubtedly increase the corporate carbon footprint ­ something that most company directors are becoming more and more concerned with.

One way to overcome the lack of controls, but maintain the cost and admin savings, is to introduce an employee car ownership scheme. ECO brings structure and control to a cash allowance scheme by dictating certain conditions regarding how the allowance is spent. Perhaps surprisingly, staff welcome this structure, because it takes the uncertainty out of budgeting their private car ownership.

Under ECO, the choice of cars is usually much wider than that on a traditional company car scheme, with significant discounts over high street prices. Unlike many other private car purchases, no lump sum deposit is needed. Fixed monthly payments cover all servicing and maintenance, including tyres and breakdown cover. The payments are protected against the driver leaving the employer, and the final value of the car is guaranteed, giving the owner various options at the end of the contract.

The whole system has the freedom of a cash allowance and the feel of a company car, without the personal tax implications.

Employers can, and do, impose a number of controls over the type of cars that can be bought within an ECO scheme. Various suitable vehicles can be included, and those deemed unsuitable for a particular job function (such as sports models or those with limited boot space) can be excluded.

Environmental controls are also becoming more prevalent in ECO schemes. Interestingly, ECO already helps reduce carbon emissions because drivers in their own vehicles are proven to cut down on unnecessary journeys ­ covering up to 15% fewer miles every year than their company car counterparts.

One of the ways companies can look to reduce their carbon footprint is to incorporate a limit on the CO2 emissions permitted in the scheme. One of Provecta’s clients, MITIE Property Services, went one step further. As well as imposing an overall CO2 limit, the company actively encourages staff to choose cars with even lower emissions. Drivers are given an extra £10 per month in their allowance if they choose a vehicle with 10% lower CO2 emissions than their benchmark car, that is the car they would have had as a company car.

When staff need use of a car for work, it is no longer acceptable to simply hand them the cash to sort it out for themselves. Even staff who are occasional private car users at work need certain controls ­ for example, is their driving licence and MOT up to date; are the tyres regularly checked; does the vehicle have the relevant category of insurance for business use? One way to exert control over private car users who claim the occasional business journey on expenses is to introduce an automatic approval system that ensures certain essential health and safety controls are being adhered to.

As the business world changes, companies need to adapt. To run their businesses efficiently costs have to be kept to a minimum. But costs are not the only factor; particularly where staff welfare is concerned.

The provision of cars is perhaps the only business cost where both sides can gain if the right system is in place.

ECO scheme incentivises lower CO2 car choices

When MITIE Property Services, a business support and building services specialist, switched to ECO just over a year ago, the company saw it as an opportunity to promote the 'environmentally accountable driving' message.

The company introduced powerful incentives to drivers to choose lower CO2 vehicles. Drivers are given an extra £10 in their monthly allowance if they choose a vehicle with 10% lower CO2 emissions than their original company car.

Analysis shows that ECO drivers contribute less in the way of carbon emissions than company car drivers. As ECO drivers are the owners of the vehicle, they usually choose more economical models and cut down on the number of journeys they make, because it directly impacts their pocket.

Use of an online mileage capture system showed that MITIE ECO drivers were doing on average 15% fewer miles than they had in their company cars. Based on an average company car CO2 emission of 166g/km, and average annual mileage 27,000 (43,443 km) before ECO and 23,000 (37,007 km) after ECO, the reduction of CO2 by 10% and mileage by 15% resulted in a total annual fleet carbon footprint reduction of 255 tonnes.

Nick Sutton is chairman of Provecta Car Plan