Without question, a company car is a huge perk. Employees get to drive a nice vehicle without all the expense and liability. The company can attract top talent while projecting a uniformly classy and trustworthy image. But company cars come at a cost, pushing some employers to reconsider.
The increasing costs of a company car
As the country does its best to emerge from the travel restrictions required by the COVID-19 pandemic, the costs of providing a company vehicle have caused some organizations to reconsider offering this perk. During 2020, many company-owned vehicles sat undriven or underutilized even as the organization continued making payments on these vehicles.
As the costs of insuring company fleets have risen, and now as gas prices are increasing again, it is vital for employers to consider either transitioning away from offering company vehicles or finding ways to reduce the costs of operating a fleet.
If your organization is currently considering transitioning some or all of its employees away from a company car and into a vehicle reimbursement program, take a look at "Three Alternatives to a Company Car" as well as "Company Car vs. Employee Car Reimbursement" for helpful guidance.
If you are not ready to explore that drastic of a change, read on for some helpful tips on cutting costs while still providing a company vehicle to employees.
The costly risks of providing a company vehicle
A company car creates 24-hour exposure to liability. The employer assumes liability regardless of any agreements or signed documents between the employee and the employer. Even if the employee or employee’s family has an accident during personal use, the business is still likely to be held liable.
Plus, companies pay for fuel, licenses, maintenance, taxes, and depreciation, which can be very costly. And don’t forget, early lease terminations or storage fees can arise in the case of employees leaving the company.
There’s also the question of how much your business auto policy covers in the event of a loss. Business auto policies pay 100% of losses involving company provided vehicles, regardless if the accident occurs during business or personal hours.
How to mitigate the risks and costs of a company car
With minimal effort and without additional cost, your company can easily reduce operational risk and costs by re-establishing the qualifiers for a company vehicle. Here are four steps to follow (or use our cost reduction calculator):
- Re-define employees that need a company vehicle either for business use or a perk.
- Remove all unnecessary staff from the company vehicle program and provide a vehicle reimbursement or allowance instead.
- Create new policies to manage the use of the company gas card or fuel reimbursement policy.
- Re-evaluate how you manage the personal use and charge back policy.
This last two steps are crucial. You need to properly measure personal use and to charge employees according to how much they use the company vehicle for personal time. Otherwise, your company cars are costing you severely. More often than not, employees grossly understate the amount of personal use to minimize their charge back at the expense of the company. A lot of times personal use is a manual process and self-reported on the honor system.
For more information on how to properly manage a fuel card or fuel reimbursement system, read Three Things about Fuel Cards and Reimbursements You Must Know.
For more information on how to properly manage a charge back policy, read our Two Money-Saving Tools for Company Vehicle Programs.
The importance of a mileage log to decrease the costs of a company car
Because you must reimburse the fuel costs of company cars, and because you don't want that reimbursement to include personal fuel, you need an effective mileage tracking system. As long as the employee has full control over reporting mileage, you're going to be paying for more gas than is necessary.
That's why you'll want to take advantage of the new generation of automated mileage tracking apps that reside in the employees smartphone or tablet and that report accurate business mileage while protecting privacy.
It may sound daunting to get this problem under control, but there are many tools on the market that will help accurately measure personal use. Take a look at some of our tools that will control costs and reduce redundant administrative time here. Please contact us for a demo of our products or tools that will save your organization.
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