Having company cars available for workers is an easy way to limit ongoing costs. Instead of compensating workers for the mileage that gets put onto their personal vehicles and having specific insurance and licensing requirements, the company vehicle can be utilized for business errands. A company car may also be a benefit given to some top level employees. Here are the pros and cons of having vehicles owned by the company for employee use.
The Pros of Company Cars
1. It limits mileage fraud.
How can you tell if an employee is actually traveling the miles they’ve logged for work? You can’t really put an odometer tracker on the vehicle. You could check to see if the actual mileage to and from each location is accurate, but do you know if they actually made the trip? When you have company cars available for use, these concerns go away because there is no mileage compensation for using a company vehicle.
2. It presents a professional image.
If you are trying to sell premium products to your community, then your prospects expect a premium sales experience. If your salesperson pulls up in a new company car with your branding on the side, then you’re meeting or exceeding the expectations of that first impression. If your salesperson pulls up in a rusted out Volkswagen Golf that has a cracked windshield and a back bumper that’s been duct-taped on, the sale becomes much harder to make.
3. Transportation costs become easier to budget.
When a business operates their own fleet of vehicles, then the transportation costs becomes more predictable. This makes them easier to budget. Of course there will always be maintenance work that must be done on the fleet and the occasional accident can add unexpected costs to the mix, but overall the cost of running company cars is easier to do than compensating employees for using their own vehicles.
4. It adds more money into the local economy.
One way a business saves money on fleet operations is to hire their own transportation experts. They’ll also contract out some repair work to local mechanics. There’s a good chance that the vehicles being purchased will come from local dealership. Depending on the reason for a company car, even drivers may need to be hired. In return, even if the company car is provided as just a benefit, there’s a chance for brand exposure throughout the community.
The Cons of Company Cars
1. This benefit has a cost which may be more than a company is willing to pay.
If a company doesn’t own any vehicles, then to provide company cars to employees, they’ll have to purchase inventory and create infrastructure. Even if a salary sacrifice setup is being used so that the company car as a benefit offsets some of the employee’s income, there are likely tax consequences, licensing and insurance requirements, and other startup costs which can be quite high.
2. Some employees may be forced to pay higher taxes.
Some jurisdictions require employees who have regular use of a company car to pay taxes that are based on the total value of the car. There may also be emissions requirements, inspections, or taxes that are added to the value tax. Then there may be tolls or other costs associated with the vehicle that may be taxed as income should the company pay for those costs. If an employee already owns a vehicle or two, the cost of then adding a company car to the mix may be too much to bear.
3. It’s a cost which is always going to be around.
Company cars aren’t just a one-time investment. Those vehicles are going to age and eventually need to be replaced. The value of a company car can be reduced by up to 30% or more in just 2-3 years depending on how it is used as well, which means selling the vehicle may not be an option either. The costs may be offset by the benefit of having employees come to an office that is located in a remote location, but the budget must be seriously looked at before proceeding.
4. What happens if your employee with a company car loses their license?
New policies and procedures must be in place for personal conduct involving a worker’s ability to drive to protect the company. What happens if a worker picks up a DUI or DWI? Or what if they have an accident with their personal vehicle and this increases the cost of their personal insurance? A company which allows a worker to drive a company car while that employee’s license is suspended could face some serious consequences.
The company cars pros and cons listed here provide a brief overview of the situation. This benefit can be quite valuable, but the cost of establishing a fleet can be quite high. If the investment can be made, however, this may be a great idea to consider.