Trying to decide the right vehicle program to meet the needs of both your company and your employees? We get it. Choosing whether to reimburse employees for their personal vehicles or provide them with company vehicles isn’t an easy decision. There are a number of unique advantages and challenges to consider with both.
To make sure you’ve got your bases covered, we’ve provided an overview of the top benefits and challenges of vehicle reimbursement. (Need to get up to speed on fleet too? Be sure to check out our blog post on The Pros and Cons of Company-Provided Vehicles).
Benefits of Vehicle Reimbursement
Decreased risk and liability
When your company owns and provides employees with a vehicle, you can be held liable for accidents that occur at any time. That’s regardless of whether the car is being used for business or personal reasons. With reimbursement, accidents during non-business use typically pose no liability for your company. And, if an accident occurs during business use, your company’s insurance is generally considered secondary to the employee’s. Which means your company insurance kicks in only if/when the claim exceeds the employee’s coverage amount.
Increased flexibility and choice for employees
With reimbursement, employees have the flexibility to drive a vehicle that best meets their business and personal needs. An employee with kids can choose a car that has extra space for driving their family around after work. Or an employee who takes frequent weekend trips can choose a smaller car with higher fuel efficiency to minimize their weekend fuel costs.
Few companies want to spend valuable administrative time or overhead managing employee vehicles. With reimbursement, your company can focus on your core business, rather than coordinating and managing corporate cars.
No upfront costs or drain on capital
Reimbursing employees for their personal vehicles eliminates the need to purchase cars or store them when they’re not in use. Reimbursements begin when employees start driving for business and end as soon as they stop driving.
You’re not fronting the bill for personal use
Vehicle reimbursement makes it easier to ensure your company pays for only the business use of vehicles, rather than covering the cost of personal use as well. With fleet vehicles, you can use technology to gain visibility into personal use and recoup personal use costs. However, without the right fleet management software, you often end up paying for some – if not all – personal driving costs.
Challenges of Vehicle Reimbursement
Determining a fair and accurate reimbursement amount
Many companies use taxable car allowances or cents-per-mile rates to reimburse their mobile employees. These “one-size-fits-all” programs often end up over-reimbursing some employees and under-reimbursing others. This is because employees have different costs of driving for work depending on where they live and how many miles they drive. The best way to ensure your vehicle reimbursements are fair and accurate (and cost-effective) is to use a fixed and variable rate (FAVR) reimbursement program that provides custom reimbursement amounts for each employee.
Less control over vehicles
Since your company doesn’t own or lease the cars under reimbursement, you have less control over the vehicles your employees drive. You can implement a vehicle policy which defines the types of vehicles eligible for reimbursement (i.e. no convertibles or hummers), so this may not be a significant concern. But, if you want to include corporate logos on cars or if your corporate image is intimately tied to the cars employees drive then reimbursing for personal cars may pose a challenge.
Access to specialty vehicles
Some job positions require the use of specialty vehicles such as trucks or cargo vans. Reimbursement can be a poor fit in these cases since few employees will purchase such a vehicle on their own. In general, the more specialized the car needed, the greater the argument for providing a company car.
Employees need to have access to a car
An intrinsic part of vehicle reimbursement is that employees must have access to a personal vehicle. Given that there are about 1.8 vehicles per U.S. household, this may not be a concern for most of your employees. But, say the employee is transitioning from a fleet program or a new hire without a car. It may take some time to research and lease/purchase a vehicle.
Visibility into business mileage
In order to provide an accurate reimbursement program, you need a way to capture and review employees’ business mileage. You can track mileage manually through excel spreadsheets – but this is a tedious process for your mobile employees and their managers, and you lose visibility into efficiency and reimbursement costs. Fortunately, you can overcome this challenge by investing in a technology platform like Motus to automate mileage tracking in the field, streamline mileage submission and payments, and provide full visibility into mileage expenses.
Optimizing Your Vehicle Program
Reimbursing employees for their personally-owned vehicles provides many benefits for companies and their employees, but it also carries its own set of challenges. Reimbursement is a great way to mitigate risk, control costs, and provide flexibility to employees.
But the right vehicle program is essential to maximizing the benefits reimbursement offers. Cents-per-mile rates may work for employees who only drive for business a few times a year, but only FAVR reimbursements ensure your mobile employees are fairly reimbursed based on their individualized costs. By combining a FAVR reimbursement program with a technology platform to automate mileage tracking and reimbursements, you can achieve a vehicle program that’s accurate, cost-effective, and easy to manage.
Thinking of transitioning from company-owned to personally owned vehicles? We’ve got a checklist that addresses everything you’ll need to know in the process.