If you knew a tool existed that could increase employee productivity, create an atmosphere of fairness, eliminate tax waste, and assist with talent attraction and retention—would you want that tool?
A well-designed and well-executed auto allowance plan can achieve all of these results. But our annual car allowance survey makes it clear that most businesses haven’t yet discovered the power of this tool.
The Overlooked Car Allowance
Over a 10-year period, how often does an investor evaluate and update his portfolio? Markets fluctuate; financial needs change, cash flow rises and falls. Regular reviews make sense because everyone makes finances a priority.
Over that same 10-year period, how often does the average business review its auto allowance? Gas prices fluctuate, employee expenses vary, budgets grow and shrink. But in our survey, 77% of companies had not evaluated or updated their car allowance during the past 10 years. Another 12% had not reviewed their allowance in the past 7-9 years. Nearly 9 out of 10 are allowing a powerful tool to collect dust.
Most companies just don’t think about the allowance they pay employees to offset their costs for travel. Of the HR managers we surveyed, 2/3 reported either that they didn’t know what their allowance amount was based on or that it was an arbitrary number. In other words, few businesses take the time to figure out the actual needs of their employees and fit the allowance to those needs. They are either incentivizing their under-compensated employees to drive less (and therefore be less productive), or negatively impacting their own bottom line by overpaying employees.
The Underutilized Car Allowance
Another interesting fact: 87% of our respondents reported taxing the car allowance as income. Most businesses just pay out allowances without substantiating business travel expenses. It seems simpler and easier not to. But tools exist that can quickly and easily track business mileage, allowing employees to save money in taxes—plus, the employer gets to deduct non-taxable auto allowances.
Most organizations (58%) pay the same amount to all employees—regardless of territory size and geographically sensitive costs. That means most companies have an opportunity to alleviate an inequitable situation in which some drivers are underpaid and others are overpaid. In the long run, fairness and accuracy will create the consistency and predictability that reassure employees.
Happy, secure employees bring stability to an organization. In our survey, only 23% of respondents could say that they knew their employees were happy with their auto allowance. Half had never taken the time to find out. Do you know whether your employees are happy with their auto allowance?
Find out more about how to craft an allowance policy that becomes a powerful tool in your organization’s hands.