4 Signs Your Car Allowance Isn’t Competitive—and 4 Ways to Fix It

Written by mBurse Team Member Dec 27, 2017 7:14:00 AM

What's an industry standard car allowance? Turns out, most companies ignore their employee car allowance when they could instead turn it into a business tool to attract and retain talent.

Is your car allowance policy competitive?

Competition lies at the heart of the American economy. In this post-recession era, everyone’s looking for an edge over their competitors. As demand for employees rises, it’s imperative to attract top talent and retain top talent. Right now you have a golden opportunity to take advantage of the weak link in many competitors' benefits package: the employee car allowance.

Your car allowance policy for mobile employees is an important piece of the compensation puzzle. You have to protect your employees’ compensation from the high and often volatile costs of operating a personal vehicle for business. Failure to do so will mean loss of top employees to competitors offering more robust policies. But as our 2018 survey reveals, the "industry standard" car allowance has become the most ignored and unreviewed part of most companies' compensation plans.

Disguised compensation or competitive business tool?

Car allowances were originally used as a way to deliver additional compensation to employees. Negotiating a vehicle allowance offered an alternative to negotiating salary with new hires and as a result allowances came to be viewed essentially as a disguised form of compensation. Instead of viewing it as a dynamic business tool to help retain current employees, many businesses let years pass without ever reviewing their actual allowance amount, focusing instead on the compensation package as a whole.

With mobile employees occupying an increasing share of the workforce, it is imperative that companies not neglect the car allowance. No matter what industry you're in, you cannot settle for the "standard" car allowance. Instead, you need to turn it into a business tool that covers all mobile employees’ costs. An allowance that is directly responsive to employees’ vehicle costs is an invaluable tool for retaining top employees and will give you a competitive edge over the many companies that leave theirs unreviewed for years.

On top of this, a standard monthly car allowance is taxable. This means that a huge chunk of the monthly payment—often 30 to 40 percent—goes to the government, instead of to the employee. By reviewing your policy and comparing it with non-taxable car reimbursement policies, such as the fixed and variable rate car allowance (FAVR), you may be able to leverage your current tax waste into a better benefit for employees while saving the company money.

car allowance tax waste calculator

4 signs your car allowance policy may not be competitive

So how do you know if your car allowance is a competitive business tool? If any one of the following statements is true, it’s time to review your policy and make it more robust.

  1. You have not benchmarked your car allowance to competitors’ allowances
  2. You have not compared your car allowance with your employees’ actual vehicle costs
  3. Your allowance amount was not based on expense data in the first place
  4. Your allowance has not changed in years

Challenges to creating a competitive car allowance

Before making any adjustments to your policy, it’s important to understand the challenge the standard car allowance faces: All mobile employees do not experience the same costs or territory sizes.

Unless all employees work in the same geographical location, drive similar distances, and drive similar vehicles, you will see a wide variety of expenses associated with driving personal vehicles for work. While some employees may find the allowance adequate or even generous, others may find it insufficient. This disparity will affect morale, dampen productivity, and ultimately drive some employees out the door.

Fortunately, these challenges are not insurmountable. With a willingness to think outside the current car allowance paradigm and a willingness to do a bit of research, you will find that a robust, competitive plan lies within your grasp. 

4 car allowance tools to sharpen your competitive edge:

1. Read our ultimate guide: Everything You Need to Know about Car Allowances.

2. Use regional gas prices to help establish a new allowance amount.

3. Factor regional car insurance costs into the new amount as well.

4. Provide a fixed and variable rate car allowance (FAVR) instead of a traditional allowance to address unequal territory sizes and costs and remove tax waste.

5. Contact mBurse—fair and flexible car reimbursements are our specialty, ranging from our FAVR car allowance to our pinpoint mileage rate.

It is imperative to go beyond the "industry standard" car allowance to remain competitive in the marketplace. You want to incentivize employees while covering their costs. This keeps top talent in your organization and sets you up to attract new employees.

Contact mBurse today for a free benchmarking report comparing your car allowance policy to industry-leading policies.

How does your car allowance compare to our 2019 survey - find out

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