Of the four major vehicle programs, company-provided vehicle programs make up a significant number. According to our 2019 mobile workforce benchmark report, they were the second most popular. A company-provided vehicle program is simple: the company provides its mobile employees with a fleet vehicle for necessary business travel. What’s less simple is the continued expense.
What are the expenses associated with the company-provided vehicle program?
In short, they are:
- Maintenance and repairs
- Idle vehicle costs
- Insurance claims
And those don’t even include the liability of unreported personal use.
If you want a more in depth look at these costs and what they mean to your business, check out our guide, The Total Cost of Company-Provided Vehicles.
Why do companies continue to use a company-provided vehicle program?
There are a few reasons. One is image control. Your company can choose what vehicles your employees drive to meetings with prospects and clients. Another often mentioned reason is the benefit to employees. Mobile workers get a car out of the bargain, and that’s seen as a plus. Though, as the mobile workforce fills its ranks with more and more millennials, their preference is to drive their own vehicle. There are also industries and businesses that fear that they would have a more difficult time attracting top talent or getting business done if they weren’t using fleet vehicles.
A final reason? It just seems easier. Your company doesn’t have to worry about reimbursing its employees for business mileage in personal vehicles, or what condition those personal vehicles are in. You have the leases, carry out maintenance and repairs, control fuel. But, spelling it all out like that hardly makes it seem easier, does it? Your company shouldn’t have to worry about managing vehicles.
What alternatives do companies with fleets turn to?
As mentioned at the beginning, there are four major vehicle programs. The most popular is a mileage reimbursement, or a cent-per-mile (CPM) reimbursement program. Employers reimburse the business mileage of employees who drive their personal vehicles. The rate that employees receive is heavily dependent on the IRS rate. Whether the reimbursement they receive is enough, or too much, depends on costs like the price of gas in their region. Unfortunately, most CPM programs have problems of their own.
Another option many employers look to is the car allowance. Those who found a company-provided vehicle program simple would be shocked by how simple managing a car allowance can be. Employees drive their personal vehicles for business purposes and receive a sum each month. Super simple. But, also super wasteful. When an employer uses a car allowance, the IRS considers the sum of the allowance additional income. This sum is therefore taxable. That means the employer pays more than the stipend while the employee receives less. According to our tax waste report, for every $100 companies with car allowance programs give in stipends, they lose $38 to taxes. There is a way to substantiate mileage and remove at least some of that tax waste from your vehicle program. You can learn more about an accountable allowance program here.
Perhaps the most accurate option is the fixed and variable rate (FAVR) reimbursement program. This reimbursement program divides the costs of owning and operating a vehicle into the fixed costs (depreciation, insurance, license and registration and taxes) and variable costs (fuel, oil, maintenance and tires), then pays employees both for the business use of their personal vehicles. This program benefits both employer and employee as it is the most individualized, productivity boosting and optimized to avoid tax waste.
What do I do if I’m looking to offload my company’s current fleet?
Switching from a company-provided vehicle program to another option in the next week, or even month, might not be in the cards for your company. But that doesn’t mean you can’t plan for the eventuality. Check out our guide on transitioning away from company-provided vehicles.