As 2019 concludes, it is imperative that businesses paying a car allowance or vehicle reimbursement audit their policy for 2020. As our 2019 Car Allowance Survey reveals, tax reform took a toll on employees who drive a personal vehicle for work. Their growing dissatisfaction is adding new pressure to employers to change their approach to vehicle reimbursements. Read on for our guide to auditing your company's policy for 2020.
How to audit your car allowance policy for 2020
To help with the challenge of evaluating and improving company car allowance policies, mBurse has created a new three-step process. Following these steps will enable you to stay responsive and competitive in the changing environment.
Step 1: Assess
Use our Car Allowance Grader to audit and grade your current company car allowance or vehicle reimbursement policy. You answer a set of questions, and our algorithms provide an automated report to help you diagnose shortcomings and target potential areas for growth. For more details, scroll down below to the section on grading your policy.
Step 2: Compare
Based on the results of the policy audit, mBurse will prepare a benchmarking analysis. This report affords the opportunity to compare the company's policy with those of competitors and similarly-sized organizations in other industries. For more details, stay tuned for our upcoming post, Will Your Car Allowance Be Competitive in 2020?
Step 3: Discover
After the audit and benchmarking report, mBurse provides by request a suggested car allowance or reimbursement rate that balances an organization's goals with its employees' vehicle expense needs. You answer a few additional questions, and we provide this rate free of charge. For more details, read 2019 Car Allowance Policy: How to Set the Proper Amount.
How to grade your company car allowance for 2020
Our self-auditing tool, the Car Allowance Grader, asks the following types of questions:
- What type of vehicle reimbursement your organization offers (e.g. monthly car allowance, mileage reimbursement, fuel reimbursement, mileage allowance, etc.)
- The current rate your organization pays (e.g. $500/month, $.58/mile, etc.)
- The the number of employees who receive the vehicle reimbursement
- Whether your organization operates in certain states with strict labor codes
- Your current practices regarding employee auto insurance verification and motor vehicle record checks
3 criteria to assess a car allowance for 2020
A car allowance audit should be judged according to three important criteria: cost-effectiveness, company risk, and competitiveness. Our reports include three sections that correspond with these three criteria.
1. Tax Waste
Because the IRS treats a car allowance as taxable income, employees receive significantly less than their stated car allowance amount, and employers pay a bit more than that amount in payroll taxes. Using a given monthly amount, the Car Allowance Grader calculates the average take-home amount employees likely receive as well as the overall amount the company actually pays on each car allowance.
Using these measures, you can discover how much money your company could save by switching to a non-taxable reimbursement. If your company already has a non-taxable vehicle plan, you can also discover whether that plan creates its own cost control issues.
When it comes to vehicle allowances and reimbursements, employers assume certain risks simply by having employees on the road. These risks derive from the possibility of vehicular accidents and the possibility of labor code violations. The three categories to examine during a policy audit are general liability, negligent entrustment, and labor code compliance.
General liability refers to whether an employee's auto insurance coverage is sufficient to cover an accident they cause while on the job. If not, their employer could end up footing the bill.
Negligent entrustment refers to situations in which an employer is held responsible for an employee's costly actions. If the employer does not take proactive, documented steps to ensure that all drivers belong on the road, a lawsuit can name the employer as a defendant on the basis of negligence.
Labor code violations related to vehicle reimbursements are a threat in employer-friendly states with laws that prohibit employers from passing on any business expenses to their employees. Vehicle expenses fall under this category, so it is important to know whether your employees operate in these states and whether your current policy complies with the law.
If a car allowance or vehicle reimbursement policy does not keep up with market changes, that policy will compromise attraction and retention of productive employees. Our annual survey consistently reveals that most organizations go years, often decades, without making changes to their policy.
With the loss of the tax deduction for unreimbursed business expenses, employees are increasingly reporting that their company's policy does not keep up with their vehicle expenses — 62%, according to our 2019 survey.
An insufficient vehicle allowance or reimbursement not only can increase attrition rates but also can decrease employee productivity as employees drive less to save money. An updated policy may sound costly, but it will likely increase retention of top talent, attract new employees, and boost productivity.
Updating your vehicle allowance or reimbursement for 2020
Once you have audited your company's vehicle policy in preparation for 2020, it's important to take the necessary steps for improvement and enjoy the economic benefits that follow. To start the process, select the option below.