Company Car vs Car Allowance: Which is the Best Option for My Company?

No matter the size or industry, many businesses debate their vehicle program. For the most part, the argument is company car vs car allowance. Which will work better for your company? Let’s explore each vehicle program before settling on one or the other. But don’t be surprised if neither the company car nor car allowance ends up the winner. 

Vehicle Programs: Company Car or Car Allowance? 

What makes company car and car allowance vehicle programs so popular? There are a couple of factors that enter the equation. Let’s start with the company car program. 

Company-Provided Vehicle Program  

Employers like company car (or fleet) programs because it provides them with control over the vehicles and their appearance. If you want your sales reps driving around in BMWs, you can do that. Additionally, employers believe new talent will see the company car as a benefit. Employees with access to fleet vehicles generally aren’t limited to driving them exclusively for business purposes. They can drive the vehicles for personal use as well. 

Car Allowance Vehicle Program 

Employers like car allowance (or vehicle allowance) programs because they’re simple to administer. Employees put business mileage on their personal vehicles and receive a monthly allowance from the company. Unless the company wants to change it, that number will not vary. That kind of dependability makes the car allowance program desirable. 

Company Car vs Car Allowance: Which One Wins? 

If only it were as easy as pointing at one of these options and naming it the winner. Unfortunately, both have a fair number of drawbacks any company should be aware of before implementing. 

The Downsides of a Company Car Program 

Company car programs allow companies total control of their fleet of vehicles. That also means they’re responsible for the routine maintenance and upkeep of each vehicle. Most companies provide their driving employees with fuel cards, which can be another exorbitant expense. Perhaps the biggest drawback of the company car program is the accident potential and legal risk it poses the company. 

For these reasons, the only companies we recommend take on the burden of the company car program are those that require specialty vehicles. 

The Downsides of a Car Allowance 

Car allowances are simple to implement, but that simplicity has a price. That price is tax waste. Because the allowance amount is not substantiated by mileage logs, the IRS considers it additional income and thus taxable. The average car allowance in 2021 was $575. After tax waste, that comes out to $393. So, employees receive less and employers pay more.  

What’s more, the car allowance amount companies provide employees does not take into account the geographic costs of operating a vehicle. Even using an accountable allowance program to cut down on tax waste, employees are not compensated fairly. 

Company Car vs Car Allowance: Considering Other Vehicle Programs  

While company car and car allowance vehicle programs are popular, they are not the only vehicle programs available. More and more, people are looking for flexibility and equity from their employers. Companies can leverage a vehicle program that provides fair and accurate reimbursements to all employees as a recruiting benefit. What’s more, they have less to worry about when it comes to risk mitigation, tax waste and overspend on fuel.  

The answer to the question: “which one is better, company car or car allowance?” is neither. If your company is looking to implement a vehicle program that promises fairness and accuracy in addition to cost control opportunities, look at the fixed and variable rate (FAVR) reimbursement program. It may be the perfect fit. 

Learn More About FAVR