Car hire vs private mileage: which is cheaper for business travel?
26 May 2016
Could changing your car hire policy seriously reduce your travel spend? Here we crunch the numbers.
All too often, procurement departments are handed the task of cutting their company’s business travel spend – quickly, and without any tools or guidance on how to do it. There are many specialist ways to reduce travel costs, but the results aren’t always immediate. Managing meetings spend, for example, can have a huge impact on your company bottom line, but time needs to be spent on getting it right before you start to see savings. But your company’s car hire policy is one area that could deliver a relatively quick fix – at least if you make sure your employees are aware of it and adhere to it.
Understanding car allowances
You may have come across the term ‘grey fleet’ – it’s the industry jargon used to describe company employees who drive their personal cars for business. By law, these drivers are entitled to reclaim up to 45 pence per mile for business journeys.
Keep in mind that our car-hire cost analysis below will only be relevant to employees that aren’t already receiving a car allowance. If they have their own car, but are paid a car allowance instead of driving a company car, the employer will have already paid for the cost of the car and the employee will be receiving a lower mileage rate, as set by HMRC.
Duty of care to drivers
Employees using personal cars can be challenging to manage in terms of mileage and vehicle maintenance. Without corporate oversight, individuals travelling on business could be doing so in old, inefficient and ill-equipped vehicles – poorly maintained and lacking facilities such as Bluetooth for hands-free calls, for instance.
Bear in mind that employers could be liable if the driver has a road accident, so that’s already a big tick in the ‘hire car’ box. Hiring cars means employees will be driving brand new – or close to new – vehicles from a professional organisation with a legal and reputational obligation to maintain its car fleet.
Cost-effectiveness of car hire
We’ve crunched the numbers for you, and our research shows that paying mileage for private cars is only cost-effective for small journeys. For journeys over 100 miles, it’s much more cost-effective to use a car hire arrangement – and the savings soon start to ramp up. Hiring a car for a journey of 100 miles is £10 cheaper than paying mileage. For a 150 mile journey, the saving increases to £27, and by the time you reach 250 miles, car hire could save £61 on a single journey.
This analysis is based on people hiring an ‘intermediate’ standard of hire car. The numbers obviously won’t stack up so well if your travel policy allows employees to hire a Mercedes-Benz, McLaren or Porsche!
Getting the message across
So how do you get your business travellers to use hire cars more often, and their own vehicles less? For some of our customers, messages prompting travellers to consider whether their mode of transport is the most cost-effective option can be enough to motivate a change in behaviour. The impact can be even greater if the same message is managed and referenced clearly within a customer’s travel and expenses policy.
If it’s appropriate, the most successful approach is simply to mandate the use of hire cars for journeys over a certain mileage. But we’d always recommend that this step is strongly supported by board and senior level sponsorship.
Interested? Let’s have a chat about your company’s travel, meetings and events objectives - from the stuff that keeps you awake at night, to the everyday experiences of your employees! Call us on 0330 390 0340, or submit your details below.