How to Create a Robust, Mature Car Allowance Policy

Written by mBurse Team Member Jan 15, 2018 5:26:00 AM

Our 2017 car allowance survey yielded a surprising result: 77% of companies surveyed had not reviewed or change their car allowance policy in the last ten years. During the last ten years, America’s workforce has grown increasingly mobile, which means that car allowances increasingly have become essential to an employee’s benefits package. However, it is clear that businesses across the country are missing a huge opportunity to develop a robust tool that can protect the company and its employees and support growth.

Not only have most car allowance policies remained unreviewed, but our survey revealed that most allowances are not based on actual employee expenses. A car allowance is supposed to protect mobile employees’ income from the volatile costs of operating their vehicle for business. But most employers have no idea whether their car allowance actually meets employees’ needs, leaving the company vulnerable to losing top employees.

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A robust, mature car allowance policy protects employees’ income, incentivizes productivity, attracts and retains talent, and mitigates risks to the company. Here are four ways you can develop your car allowance into a robust business tool

  1. Find out your employees’ actual business travel expenses 

For all you know, some employees may be having to pay out of pocket for work-related expenses. While some employees may leave because of an insufficient car allowance, others may instead try to compensate through unproductive habits. They may drive less, opting for fewer face-to-face meetings and grouping more trips into tighter travel windows.

  1. Benchmark your allowance to regional gas prices and insurance costs

Not all employees experience the same expenses. Some territories come with higher costs than others. Your car allowance should reflect this. And when gas prices rise, the allowance should rise with it. There are penalties in some states (California, for example) if you cannot prove that your allowance fully covers employees’ expenses.

It is imperative that your car allowance be quantifiable, or else you must compensate additionally to avoid labor code violations, penalties, and costs.

  1. Consider providing a reimbursement instead of an allowance

You can actually decrease your costs while increasing employee benefits if you switch from a taxable car allowance to a non-taxable reimbursement plan. In other words, leverage the portion of the allowance that currently is eaten up by taxes to pay less overall while increasing employees’ net. It may sound complicated, but consider the benefits: you fully cover employee expenses, you avoid labor code violations, you incentivize productivity, and you retain top employees.

  1. Add motor vehicle record checks (MVRs) and minimum insurance requirements to your policy

If you don’t pull MVRs you could be subjected to negligent entrustment cases. Driving records can change, so it’s important to check MVRs on an annual basis—not just at the time of hire. Similarly, if you don’t maintain minimum insurance requirements, you could be subjected general lawsuits where an employee’s car insurance falls short in the event of a work-related accident. We recommend a minimum coverage of 250/500/100 with bi-annual verification of insurance coverage. You don’t want an employee’s lapse in coverage to come back to haunt you.

A mature car allowance policy is an invaluable tool. The time and energy you spend making it more robust will pay dividends over time, keeping employees happy and delivering greater business travel ROI. Plus, your organization will be protected from unnecessary risks. 

If you want to make your policy more robust but find these suggestions intimidating, contact mBurse today. Our experience and access to data can greatly simplify the process.

2017 car allowance survey results

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