The results are in: most companies ignore best practices. Outmoded car allowances set companies up for expensive fixes. Don’t be like the competition.
In our line of work, we get asked all the time to help organizations benchmark their employee car allowance. A benchmarking analysis is a powerful tool—if used the right way. But if our 2018 car allowance survey shows anything, it’s that following the lead of the competition could be a risky proposition.
Simply put, few of our respondents follow best practices when it comes to their vehicle allowance program. But this omission could be an opportunity for competitors who optimize their policies now.
Out of the 100 HR managers that we surveyed, fewer than 30% reported having made changes to their allowance in the past 10 years. Even fewer reported basing that allowance amount on employee expense data. These are just two of the questions we asked, and together they indicate a lack of awareness about current practices.
Let’s look at one important reason why following the lead of the majority could prove a missed opportunity: tax reform.
Tax reform and its effect on car allowances
Here's a one-question quiz: Can you deduct mileage if you get a car allowance?
The answer? No—not anymore.
While all the headlines focused on corporate and individual tax cuts, the tax bill passed by Congress in 2017 also took away employees’ ability to write off unreimbursed business expenses for tax years 2018 – 2025. This means that employees who receive a car allowance cannot deduct business mileage for the next seven years. Few companies or their employees seem to realize this, but the reality will sink in during the 2019 tax season.
Companies that base their allowance amounts on expense data, however, face lower risk of employees relying on a tax deduction to make their car allowance whole. If your organization is among the majority that hadn’t made changes in the last 10 years or relied on expense data, then now is the time to make a change. Now is the time to start following best practices and protect the company and its employees from the changes to the tax code.
Using survey results to gain a competitive edge
Our 2018 survey can serve as an opportunity for your organization to take the lead. Companies that ignore best practices may face increased attrition and increased risk of labor code violations and lawsuits for unreimbursed vehicle expenses now that employees cannot deduct mileage. Our survey data and expert analysis are a great place to start as you consider ways to enhance your current policies and get ahead of the coming challenges due to the tax reform.
Here are additional topics our survey addressed:
- Awareness of tax reform’s impact on car allowances
- Plans for changes to the company’s car allowance this year
- Paying a taxed vs. a non-taxed allowance
- Employees receiving the same amount vs. different amounts
- Supplementing with a fuel or mileage reimbursement
- Employee satisfaction with their car allowance
2018 survey: worth a read
Taking a few minutes to read the full results along with our analysis and recommendations will be a great first step in the process of benchmarking, evaluating, and updating your own vehicle reimbursement policies. With the 2018 tax year soon ending, now is the time to make a change.