What to Consider Before Offering Employees Company Vehicles

Posted by Jake Riviera on April 11th, 2021

Many business owners offer company vehicles to their employees; however, that decision comes with some significant risks. You have to weigh the pros and cons before making a deciding on such an investment. Like every other aspect of owning and operating a business, you must establish a plan of action for managing your fleet of company vehicles and detailing usage allowances. Here are a few tips to help you navigate this process.

Protecting Company Vehicles

The first question you need to ask yourself is how your employees will be expected to treat company property. Determining whether or not an employee has the right temperament and sense of responsibility to manage a company vehicle is a critical step that should come even before purchasing vehicles for company use.

Employees typically do not treat company property with the same degree of care as their own without any personal investment. That investment does not necessarily need to be financial, though. If company vehicles are treated as a performance reward, the employees responsible for them will have more reason to treat them with care.

Of course, any time you involve other people in the daily usage and care of company property, you open the door for accidents. That is why having quality auto insurance on your fleet of company vehicles is necessary. Rather than paying the highest premium of big-name insurance providers, try shopping around for quality cheap car insurance to get the best bang for your buck.

Personal Versus Business Use

Before entrusting your employees with company vehicles, you need to establish the ground rules for use. Some companies provide fleet vehicles for strictly business use only, while others treat this as a personal benefit of employment. You will need to consider the differences between personal and business use of company property.

Company vehicles given for personal use provide a greater incentive for employees to care for them as their own. The greater the personal connection, the greater the consideration most employees will have toward the condition of your company property. On the other hand, allowing company vehicles to be used for personal use may include excess mileage, additional wear and tear, and more opportunities for accidents.

Designating company vehicles for business use only can mitigate some of these risks. A fleet vehicle that is not permitted for personal use offers some protection against unnecessary travel. Of course, to ensure that company vehicles are actually only being used for business requires additional investments into fleet management tools like GPS systems and onboard cameras. Treating fleet cars so strictly also reduces the incentive of employees to take better care of them on a daily basis, so a business-only model poses a risk of additional wear and tear due to negligence.

Tax Deductions

Another factor to consider is how your fleet will affect tax season for your business and your employees. On the business side, you can deduct business certain business expenses from taxes; however, you are severely limited in deducting any personal expenses. A company vehicle designated for personal use may not qualify for any deductions.

If employees have non-reimbursed driving expenses, they cannot deduct them from their personal tax return under current tax law. You can provide a non-taxable auto allowance to cover regular driving expenses through an accountable plan that keeps records of mileage and other fleet-related expenses. Of course, those expenses are only non-taxable if they are business-related.

Expenses for the personal use of company cars require withholdings for both federal and state taxes. This means that the benefit of the employee having access to a company vehicle for personal use is offset by a necessary reduction of income or additional financial compensation from the company to mitigate the tax burden to your employees.

Managing a fleet of company vehicles is an investment, and it poses several challenges along the way. You need to determine whether you want to use company vehicles as a means of improving your business performance and branding or as a means of rewarding employee loyalty.