Staff pay up to $5 million a year for employer’s salary sacrifice deal

Staff members at Victoria’s largest public health service are “being ripped by their own employer’s greed”, according to one insider.

EXCLUSIVE

It is understood that Victoria’s largest public health service is making $3-5 million a year from a novated car leasing contract it has with Australia’s largest salary packaging provider, Maxxia, and it is public health staff that are footing the bill.

The annual payments, made by Maxxia to Monash Health, allegedly constitute a ‘sign-on fee’ and form part of the contract between the two organisations.

But it has been suggested to news.com.au that rather than Maxxia absorbing this cost, it is borne by Monash Health staff who take out a salary sacrificed novated car lease.

As one leasing industry insider who contacted news.com.au put it: “Essentially these staff members are being ripped by their own employer’s greed!”

Information provided to news.com.au suggests that Maxxia recoups these payments by charging interest rates that are well above those available in the wider finance market.

Market rates for such financing sit at around eight per cent while an analysis of the interest rate charged by Maxxia undertaken by a commercial lawyer puts it at 15-17 per cent.

It is understood that Victoria’s largest public health service is making $3-5 million a year from a novated car leasing contract. Picture: Andy Brownbill

Novated leasing is a finance arrangement between an employee, their employer and a leasing company that allows employees to part-pay for a new car lease from their pre-tax salary under a salary sacrificing arrangement, with the remainder payable from their take-home pay.

It’s pitched as a way for workers to reduce their tax payable, while also getting a new car, the cost of which is packaged up with extras such as insurance, extended warranties, roadside assistance, servicing and maintenance, fuel, tyres and incidentals, such as car washing and detailing.

For people in higher income tax brackets, novated leasing can be an effective way of reducing their tax, but the lower your marginal tax rate, the less benefit you receive.

It is understood that when looking for a salary sacrificing administrator in 2017, Monash Health only considered two providers and it has been suggested that the contract was awarded based on which company was willing to pay the highest sign-on fee, despite the organisation promoting salary sacrifice arrangements as an employee perk.

During 2023, staff at the state government organisation - which employs 22,000 people - including anaesthetist Dr Michael Keane and both the Senior and Junior Medical Staff Associations, expressed discontent with the high interest rates on novated leases being charged by Maxxia.

Maxxia does not disclose the interest rate it charges, and staff were concerned that the arrangements were causing financial harm to low-paid staff who elect to take a novated car lease, such as nurses and administration staff.

In particular, Monash Health staff were concerned about the inability to source financing for novated leases elsewhere at a lower rate and only use Maxxia to administer their lease, known as a self-managed lease.

Dr Michael Keane is among the Monash staff that have expressed concerns about the arrangement.

A Maxxia spokesperson said it cannot comment on specific contractual arrangements, but it is understood that from November last year, the right to arrange their own financing was made available to Monash Health staff in response to this staff feedback.

However, Dr Keane told news.com.au that this change has not been communicated to staff.

Furthermore, this choice of financier is not guaranteed, as it is understood that in order to seek outside finance, employees need to make a request to Monash Health, which assesses each application for a self-managed novated lease on a case-by-case basis.

Dr Keane has requested a copy of the contract between Maxxia and Monash Health under Freedom of Information legislation.

The contract was due to be released by the end of February, but Monash Health did not meet that deadline.

“It is reasonable that everyone should be made aware of what Monash received for entering into an exclusive agreement. Monash Health is our community health service,” Dr Keane said.

Maxxia, along with other salary sacrifice administrators, do not divulge the interest rates charges as part of their car leasing deals.

A former financial planner, who has set up hundreds of salary sacrifice arrangements including many through Maxxia, told news.com.au that it is standard practice for Maxxia, along with other novated lease administrators, not to make it obvious that employees can source finance for their novated lease elsewhere, even when this is included in its employer contract.

He added that in his experience, when an employee does source their own finance, the assistance provided in administering the novated lease from Maxxia or other salary sacrifice administrators is minimal.

In another blow to Monash Health staff, a further issue related to the health service’s management of the novated leases taken out by its employees has also come to light.

Fuel costs are packaged into a novated lease and an employee is entitled to recoup the GST on their fuel spend – an amount that equals 10 per cent of the amount they spend on fuel.

But it is understood that rather than returning the fuel tax credits earned on novated leases to employees, Monash Health retains this money itself, with the amount estimated to total tens of thousands of dollars a month.

Senior staff are concerned about the financial impact of the arrangement on lower paid staff. Picture: Ellen Smith

When salary packaging arrangements were first introduced in Australia, they were, and continue to be, aimed at the public sector and charity workers as a benefit in lieu of pay rises to prevent them from defecting to higher paid roles in the private sector, a source told news.com.au.

“If workers aren’t getting the full benefit of these arrangements either via a competitive interest rate on a novated lease or by getting their fuel tax credits back, they are actually leaving workers financially worse off,” the source said.

In response to detailed questions from news.com.au about these allegations, a Monash Health spokesperson said: “Novated leasing is an additional financing option offered to Monash Health employees for their personal cars as part of our salary packaging offering.”

“We understand that if an employee does elect a novated lease, then there are a range of choices available to them, including their choice of financier from a panel offered by Maxxia, or by nominating their own financier and taking a self-managed lease.”

Originally published as Staff pay up to $5 million a year for employer’s salary sacrifice deal