When employees use a personal vehicle for work, the employer should set requirements for auto insurance. Here's a guide for creating a compliant drivers program for car insurance.
Proof of Car Insurance Compliance
mBurse administers FAVR auto reimbursement programs for many organizations across the U.S. Our program requires drivers to upload a current insurance coverage declarations page. This is to prove not only that their vehicle is covered, but also that the coverage amounts meets their employer's required minimum amount. No car insurance compliance, no reimbursement.
For some organizations and employees a compliant drivers program can feel heavy handed. But tying insurance verification to reimbursement payments benefits both company and driver. Let's explore why.
1. Car insurance compliance and company risk
Employers need the protection that comes from verifying employee car insurance. This is because of the concept of vicarious liability.
Vicarious liability and auto insurance
When someone operates a personal vehicle on behalf of an employer, the concept of vicarious liability applies. More precisely, the legal doctrine of respondeat superior makes the employer potentially liable for damages caused by the employee.
Company liability for employee accidents
When an employee causes an accident, the employee's car insurance kicks in. If the employee's insurance coverage is not high enough to cover the damages, problems arise. The victims will likely seek money from the employer's insurance. This is why it is important to require employees to carry robust insurance coverage.
Employee car insurance policy requirement
As a best practice, an employer should require employees to maintain a 250/500/100 policy. At a bare minimum, a 100/300/50 policy will cover most wrecks. The higher coverage is worth it, though, for both employer and employee.
Verifying driver insurance compliance
Another best practice is to verify auto insurance every six months. (This frequency matches the policy renewal schedule.) Requiring each employee to upload their auto insurance declarations page will help cover employees with appropriate levels of insurance. This policy will in turn reduce the risk of vicarious liability for accidents.
2. Insurance compliance and employee protection
Not all employers remember to factor auto insurance into a car allowance or reimbursement program. Requiring proof of insurance for reimbursements helps ensure the insurance premiums are covered.
Fair reimbursement for car insurance
When it comes to employee-owned vehicles, employers should reimburse auto insurance premiums. The employee is hazarding a valuable personal asset on behalf of the employer. The employee may be purchasing higher insurance coverage to comply with company requirements. It is fair for the employer to factor that insurance coverage into its reimbursement method and amount.
Mileage reimbursement and car insurance
Many organizations reimburse employees using the federal mileage rate of 70 cents per mile. The IRS includes auto insurance as a factor in calculating that rate. However, many states have much higher or much lower insurance premiums than the national average. Plus, an employer that requires a 250/500/100 policy will require greater insurance coverage than average.
A fixed and variable rate program does a better job fairly reimbursing insurance coverage. (More on this below.)
Driver compliance and driver protection
By purchasing a robust insurance coverage, the employee receives protection from even a very expensive accident. The employee also gains protection from a collision with an uninsured or underinsured motorist. Finally, the driver gains greater protection from a lawsuit seeking damages.
How to set up a compliant drivers program for car insurance
The first step to establishing a compliant drivers program is to choose the right car reimbursement policy. Once you choose the correct policy, you can establish routine insurance verification procedures.
1. Choose mileage reimbursement vs. FAVR
Because auto insurance premiums are a fixed monthly cost, mileage reimbursements do not ensure full reimbursement. Whether the employee drives 500 miles one month or 1000, the car insurance premium will not change. If on
e month the employee drives far fewer miles than usual, they might not accrue enough mileage to cover their insurance on top of other costs.
This is why a FAVR reimbursement model works better, since it includes a fixed-cost payment on top of a variable mileage rate. A traditional car allowance also works as a way to cover insurance premiums, but carries with it lots of tax waste. FAVR payments are tax-free.
2. Write a minimum auto insurance policy
Next, you need a written policy that states the minimum insurance coverage necessary. State the reasons for this policy (protecting both the company and the employee). Set the minimum coverage much higher than state minimums, preferably a 250/500/100 policy.
3. Require car insurance dec page for verification
The company expense and reimbursement system can supply a way to verify insurance coverage. Employees should upload an image of their auto insurance declarations page into the expense system every six months. Without that up-to-date verification, they don't get reimbursed.
Other components of a compliant drivers program
Requiring minimum car insurance coverage is just one part of protecting the company and its drivers. An employer should also ensure that drivers comply with safety standards while on the road. The main components of a Safe Driver Program are written safety policies, routine motor vehicle record checks, and a system of interventions.
Safe Driver Policies
Every organization with employees that operate vehicles should have written policies detailing safety standards. For example, an organization should prohibit the use of mobile devices for communications while driving. Uses for navigation or mileage capture should be hands-free. No driver should feel pressure to conduct business calls while in transit.
Get more information about establishing safe driving policies here.
MVR Checks
MVRs or Motor Vehicle Records contain information about moving violations by motorists. An organization with a mobile workforce should conduct routine MVR checks on all drivers. You need to know when an employee has gotten a speeding ticket, a reckless driving citation, or a DUI. This allows the organization to take action in response.
Without this precaution, risk exposure increases. Employees with dangerous driving habits may cause an accident on the job. If this happens, the victims may sue the organization for negligent entrustment. To learn more about this risk and how to conduct MVR checks or adopt continuous MVR monitoring, read our Guide to Negligent Entrustment.
Safe driving program training
When a MVR check reveals a violation, the organization needs to take action. Depending on the violation, the action may be as simple as requiring the employee to undergo a safe driver training program offered through the DMV. A pattern of violations or a serious violation such as a DUI may require termination of employment or removal from a job requiring vehicle use.
Help with 2025 compliant drivers program setup
If your organization would like help setting up a compliant drivers program with insurance verification, give mBurse a call. Our professional services team can help with model policies, mileage tracking and reimbursement software, and FAVR program administration. Or if you would like further information about ways to reduce risk, take a look at our ultimate guide below.