The natural inclination of a successful manager is to solve a problem once and for all with a bold, even aggressive move. But that approach can fail to take into account the repercussions of a given strategy. Such is the case with employees’ use of vehicles, where there can be a temptation to purchase company cars. That’s still a bad idea because of the significant implications in three key areas.
Company cars costs more
Company cars costs more than reimbursing employees for the business-related miles they drive in their personal vehicles. Our study found that when taking into account purchase costs, interest, insurance, maintenance and fuel, it costs nearly 70 cents a mile to buy or lease a company car.
Buy/Lease Vs. Mileage Reimbursement
Assumptions $20,000 car | 4 year lease | 12,000 miles/year | 20 MPG | $3.50 gas/gallon
|Costs||12k Miles/Year||8k Miles/Year|
|Estimated Monthly Costs||$686.67||$588.37|
|Cost Per Mile (1k miles/mo)||$0.69||$0.88|
Every workday hour that a company car sits in the parking lot only drives those costs higher. Then there are the costs of replacing vehicles in need of service. Companies that make vehicles available to employees for their personal use only compound their problems.
Company cars increase liability exposure
There is no need to wonder if a business is responsible for the actions of drivers of company cars. The courts have made clear that when it comes to liability in a vehicle-related accident there is no distinction between business and non-business use. Companies are liable no matter what agreements they make with employees driving company vehicles. That liability can even extend to family members of employees.
Conversely, when employees drive their own vehicles for business, their personal auto insurance is the primary insurance. When they aren’t driving for business, it is the only insurance. Reimbursing employees for their business miles driven significantly reduces liability exposures that most would agree are already frighteningly high.
Company cars have tax ramifications for employees
While some employees might consider a company car a perk they get for free, the IRS won’t agree. IRS rules require employers to place a value on a company vehicle and consider that as income. That “income” (that really isn’t) is taxable, of course, which leads to withholding from paychecks, or, worse, no withholding and surprise tax bill for the employee.
Mileage reimbursement solves the company car problem
Company cars put a business in the car business and that’s not a place where most companies want to be. Reimbursing employees for business miles driven in their personal vehicles not only treats them fairly and shields that reimbursement from taxation, it creates a deductible business expense for the organization.
The key to setting up an accountable plan that captures this benefit is a mechanism that substantiates employee expenses. And while employee records based on odometer readings are enough for the IRS, they shouldn’t be sufficient for your organization.
SureMileage by CompanyMileage provides employers with a secure and accurate system for employees to manage mileage reimbursement. Rather than verifying the miles that were driven, SureMileage calculates the expenses to be reimbursed. It’s a new approach to an old problem – one that is only made worse by the use of company cars.