You company's car allowance could be impacting your employee retention rate. If you have not adjusted the allowance amount in awhile, don't be surprised if attrition rates have risen.
The employees who receive a car allowance typically operate in sales and service roles and therefore interface with your clients and prospects on a daily basis. They are the face of your organization. However, keeping productive mobile employees can be a challenge. It is therefore very important to do everything you can to make sure these employees’ needs are being met.
As the role of mobile employees has evolved over the past 15 years, so has their unique set of needs. These employees must have a mobile phone, a tablet or computer, and a reliable and suitable vehicle to be successful. Mobile employees increasingly are driving their own personal vehicles for work, necessitating robust car reimbursement programs. Unfortunately, corporate business vehicle policies have not kept pace with mobile employees’ needs, leading to employee retention problems.
Few employees will stay content with a job that does not compensate them fairly. A car allowance that insufficiently compensates mobile employees will lead to high attrition rates. It’s plain and simple: you have to pay close attention to whether your auto reimbursement policy is helping to retain employees or driving them away. Here's the formula:
Standard Car Allowance + Dynamic Vehicle Costs = Employee Attrition
An employee's car allowance should cover all reasonable costs associated with owning and operating a vehicle for work. That monthly payment covers not only gas and maintenance but also insurance, taxes, fees, and depreciation. The problem is, these costs change over time, and different employees experience different costs.
Territory sizes vary, and the cost of living varies from place to place. Gas prices change, and so do insurance costs, vehicle taxes, and registration fees. Unfortunately, few organizations have a business vehicle policy that keeps up with the actual costs of operating a vehicle. Our 2017 survey found that most employers have not updated their auto allowance or reimbursement amount in the last 10 years.
If you have not updated your business vehicle policy recently, or if you are providing a standard car allowance or reimbursement amount for all employees regardless of territory costs or size, it is probably contributing to your retention problems. There's a good chance you have many employees with unmet driving costs. Mobile employees are either going to modify their behavior or leave your company.
Taxation of Car Allowances and Employee Attrition
If your employees pay taxes on the amount they receive to offset vehicle costs, this can worsen the problem. Under IRS guidelines, a standard monthly car allowance should be taxed. These taxes can reduce a typical car allowance by 30-40%. An amount that seems suitable to cover business use of a personal vehicle might significantly fall short after taxes.
Employees know that other organizations pay non-taxable plans like mileage reimbursements or fixed and variable rate car allowances, and they may look for work at a competitor who actually reimburses their expenses rather than just handing out an allowance that is taxed.
The True Costs of a Standard Car Allowance
The first step in the employee leaving the company will be modifying their behavior to reduce their costs. This in turn costs the company as employees opt to make phone calls or view webinars as alternatives to business travel. However, phone calls are often less effective than face-to-face interactions when it comes to sales and client relations. This will affect your bottom line.
If the employee leaves your company, you face a new set of costs. Recruiting, hiring and training employees takes time and money. It takes on averageto fill an open position. This is 42 days of lost revenue and revenue generating activities.
Employees are not going to continue working a job that does not protect their income from the costs of operating their vehicle. Make sure your organization does not make the mistake of providing a standard, equal car allowance for all employees regardless of their territory size or costs. Equal is not the same as equitable.
Mobile employees trust your organization to reimburse them properly for the use of their vehicle for business use. If their car allowance does not cover the full range of vehicle expenses, why shouldn't they do something about it?
Contact us for a free benchmarking analysis of your current business vehicle policy. We will be happy to help you find out how much you could save with a non-taxable vehicle plan.