Personal use of company vehicles is standard practice for most businesses with a fleet of vehicles for driving employees. In fact, it’s generally presented as a perk. Why purchase and maintain a personal vehicle when you can use your work vehicle? However, there are several major issues with the personal use of company vehicles. But first, let’s start with the basics. What is a company-provided vehicle program?
Businesses providing driving employees with a leased or purchased vehicle is referred to as a company-provided vehicle program, or a fleet program. As stated above, a company may invest in a fleet of vehicles to offer as a benefit to the talent pool. This also offers them an element of control over company image. However, there are issues that stem from the perk of personal use.
There are several issues businesses may experience with the personal use of company vehicles. Most of them involve legal action, out of control spend and outdated perceptions. We’ll provide further detail on each below.
The largest issue most companies face when allowing employees to take company vehicles home is accident liability. Accidents happen all the time. However, accidents where the driver of a company’s fleet vehicle is found at fault can result in a lawsuit targeting the company. That issue isn’t limited to business hours. Any time a company vehicle is on the road, it is potentially exposing the business to accident and lawsuit.
Fleet vehicles are generally provided with a fuel card. Employees will use this card to gas up their fleet vehicle for business travel. However, fleet fuel management is a serious issue. What’s to stop them from using the fuel card for personal use? Companies often implement a policy restricting employees from gassing up over the weekends. However, this policy does not prevent employees from gassing up late on Friday and early the following Monday. One method companies use to recoup excess spend is a personal–use chargeback. What’s a personal-use chargeback?
When a company provides its employees with a benefit, like a company car, the IRS will tax that benefit. However, companies can require employees pay a personal-use chargeback at the same value as the benefit. This means the IRS has nothing to tax. Most companies do not accurately track the benefit of a work vehicle to their employees. Instead, they keep things simple.
They’ll set the rate at $150 a month, and either charge driving employees monthly or all together at the end of the year. Either way, this method lacks accuracy, and may even encourage employees to use fuel cards more. Not every employee will take advantage of the personal use of company vehicles. Some may use it half for business, half for personal reasons. Others may use it more for business and vice versa. However, without implementing a reporting process, there’s no way to track this.
Every vehicle needs routine maintenance: filter changes, tire rotations, oil changes, etc. Unfortunately, personal use of company vehicles often results in additional maintenance. When someone doesn’t own the vehicle they drive, they care less about it. That means stories of fender benders that happened the business day after a long weekend. The cost of up-keeping an entire fleet is significant. These additional maintenance needs only increase that cost.
Accident liability, fuel spend and additional maintenance are three reasons personal use of fleet vehicles ultimately costs a business more. And there are other reasons to consider shifting from a company-provided-vehicle program: replacing fleet vehicle, idle assets, administrative burden and IRS compliance… It is without question the most expensive vehicle program option. Interested in exploring options that mitigate liability and control costs? Explore other vehicle programs today.