One way to attract and retain talent is by including a company car in your employment offer. Even if used primarily for business purposes, personal use may be permitted (albeit with some restrictions in place), so it’s an enticing option for prospective employees.
However, before you hand the keys to an employee, there are certain matters to resolve. Consider which positions or departments require a car, which kind of car should be issued, and how to handle the corresponding expenses and paperwork. Address these issues now and you’ll avoid potentially serious problems later.
Consider the car
What type of company car should you offer your employees? Most company cars are sedans or SUVs, as these vehicles allow your employees to transport clients or product with ease. A lot depends on your company and where your business is located. If you’re in an urban location, a hybrid or an electric vehicle makes sense — you can save on fuel expenses and get an additional tax write-off if the vehicle is electric. Not to mention, you will reduce your company’s carbon footprint. You may even be able to get tax break for your company by installing charging units on the premises, which is also an added benefit for other employees.
As for the rumored tax loophole that allows businesses to claim vehicles weighing more than 6,000 pounds, it is still in place. However, the big drawback here is that the vehicle must be 100 percent used for business. That means employees can’t use the company’s Chevrolet Suburban or Toyota Land Cruiser on their time without socking it to your business.
When choosing a company car, you may also consider a model that is “connected.” Employees who can connect to the Internet and Bluetooth to sync phone contacts or navigation while on the road may be more efficient and easier to reach.
Consider the expenses and paperwork
A lot goes into taking care of a car, whether it’s for business or personal use. Get on the same page with your employee about how these aspects should be handled.
1. Auto insurance
Your employee isn’t responsible for insuring the vehicle you lease or buy. That’s your responsibility and such coverage is not part of your business owners policy.
Contact your company’s insurance agent and find out how each vehicle should be listed along with the related coverages. Your agent will ask a series of questions to determine the types of coverage needed, including liability risks. The Business Auto Coverage Form (BACF) is the standard contract for supplying auto liability. Choose the right level of liability to protect your business.
2. Fuel payment methods
You have several options available when employees pay for fuel. Some businesses prefer check payments, but check acceptance is on the decline and creates an added layer of paperwork for employees. Cash is always king as it never restricts where your employees can fill the tank. However, you must require employees to collect a receipt to submit for reimbursement, which can also result in cumbersome paperwork.
By far the most popular way to pay for gas is a credit card. With this method, simply issue a credit card to your employee and establish the parameters for use (e.g., fuel purchases and perhaps vehicle maintenance). Credit cards are convenient as no paperwork is required. The downsides are the various transactional, incidental and flat fees charged by credit card companies. Another choice is making online payments, an emerging trend that may be conducted via the employee’s smartphone.
3. Vehicle maintenance and repair
Beyond refueling the vehicle as needed, who will be responsible for the upkeep? That’s a responsibility that can be entrusted to the employee or managed by the business.
You can require employees to keep the vehicle clean inside and out. The company car is a reflection of your business. If it looks grungy it could reflect poorly on your enterprise. Furnish your employees with a maintenance schedule and require that state inspections be performed. (Keep in mind that a well-maintained car is better at retaining value.) You might also require internal inspections bi-annually to ensure the work has been done and that all paperwork is in order. For leased cars, require mileage check-ins to avoid mileage overages.
If you prefer your business to handle all maintenance requirements, you can still have employees maintain a log tracking the miles driven and listing possible problems. Motor club memberships can prove invaluable for managing emergencies when employees find themselves stranded.
4. Personal use parameters
What type of restrictions should you impose on your employees when using a company car for personal use? Keep in mind that the Personal Use of a Company Car (PUCC) is considered a non-cash fringe benefit. This means a portion of the car’s value comprises part of the employee’s total compensation for tax purposes and must be reported. Your company’s accountant can offer guidance here.
Establishing a mileage limit is important if the vehicle is a business lease. Restricting driving to the 48 contiguous states may be necessary, especially if the added cost of carrying an insurance rider for trips to Canada or Mexico is prohibitive. You might also restrict company vehicle usage to your employee and spouse, insisting that teenage offspring not drive it. Finally, help ensure that your employee follows safe driving practices by discouraging distracted driving, such as texting and checking emails while behind the wheel.
Remember, your business has the right to terminate company car privileges at any time. Require your employees to maintain a clean driving record as a condition for using the car. This also means getting off on the right foot by requiring employees to agree to allow your business to review their driving record before you hand them the keys to a company car.
