Offering a competitive car allowance in 2025 may be costly. Auditing your policies can help you boost driver benefits while reducing costs.

Why audit your car allowance policy?

Vehicle costs have significantly increased over the past few years. Any organization that pays a car stipend to employees must respond to this reality. If your organization has not increased its allowance to keep up with inflation, that is a problem.

However, a policy audit should do more than determine whether to adjust the amount. Several best practices can ensure that your business vehicle reimbursement program supports company goals. A proper program review will reveal inefficiencies, hidden costs, and growth opportunities.

How to review your car allowance for 2025 

mBurse has created a three-step process for evaluating and updating business vehicle policies. Following these steps will enable you to stay responsive and competitive in the changing environment. It will help you customize your car allowance for changing employee needs while cutting expenses simultaneously.

Step 1: Assess your current policy

Use our tool below to audit your current policy. After you answer a set of questions, our algorithms provide an automated report. This report can help diagnose shortcomings, target areas for growth, reduce costs, and increase employee satisfaction.

Step 2: Obtain benchmarking data

Based on the policy audit results, mBurse will prepare a benchmarking analysis. This report compares the company's policies with those of competitors and similar-sized organizations in other industries. Click the button below to get your free report.

Step 3: Get a customized car allowance

After completing the audit and benchmarking report, you will receive your customizable car allowance or reimbursement data from mBurse. The report will tell you immediately if your organization is at risk. Often, by reducing or eliminating taxes on your car allowance, you can cut costs while increasing employee benefits.

3 steps to calculate a car allowance for 2025

A car allowance policy should be judged on three critical criteria: cost-effectiveness, company risk, and competitiveness. Our reports include three sections that correspond with these three criteria.

1. Taxes on car allowance plans

The IRS treats a car allowance as taxable income, so employees receive 30-40% less than their stated allowance amount. FICA also adds to the employer's expense. The Car Allowance Grader calculates the take-home amount employees receive and the overall amount the company pays. 

These calculations will reveal how much your company could save by switching to a non-taxable reimbursement. You can discover any cost control issues if your company already has a non-taxable vehicle plan.

2. Company risk from employee vehicles

The risks of car accidents and labor code violations add hidden costs. During a policy audit, the three categories to examine are insurance liability, negligent entrustment, and labor code compliance.

Insurance liability refers to whether an employee's auto insurance coverage is sufficient. Will it cover an accident they cause while on the job? If not, their employer could end up footing the bill.

Negligent entrustment refers to an employer being held responsible for an employee's costly actions. An employer should take proactive, documented steps to ensure the safety of all mobile employees. Otherwise, a lawsuit can name the employer as a defendant.

Labor code violations related to car allowances are a threat in employer-friendly states. Certain states and cities prohibit employers from passing on business expenses to employees. Knowing whether your employees operate in these places and whether your policy complies with them is important.

3. Age of car allowance policy

If a car allowance policy is not current, it will compromise the attraction and retention of productive employees. Our annual survey consistently reveals that most organizations go years, even decades, without making changes.

Due to inflation, employees may find that their allowance does not keep up with expenses. An insufficient vehicle allowance will increase attrition and decrease employee productivity. Employees may protect their income by driving less to save money. An updated policy can increase the retention of top talent, attract new employees, and boost productivity.

Calculating a competitive car allowance in 2025

Once you audit your company's vehicle policy, customize your car allowance to the company's and the employee's needs. This will allow you to enjoy the savings that follow, even as you boost benefits for some or all mobile employees. The question that you should come back to is: When was the last time I checked the competitiveness of our auto allowance policy? To start the process, select the option below.