Eddy’s HR Mavericks Encyclopedia
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Company Car
Do your employees drive for work regularly? Are you trying to find a solution that doesn’t require putting miles on personal vehicles? Is there a way to make work driving more attractive to new hires? Perhaps it’s time for your organization to implement a company car. Read on to learn more!
What Is a Company Car?
Some businesses use a company car as an added perk for their employees. A company car can often be used for business or personal use depending on how your organization chooses to use this benefit, but the car should be registered to the business. Most organizations that move forward with providing company cars to employees do so because of the travel directly related to their work.
Pros and Cons of Providing Employees With Company Cars
As with any decision your organization makes, there will be positives and negatives to consider with providing company cars to employees. Let’s review some of those below.
Pros of Providing Company Cars
- Tax exemption. If your employees are using a company-owned vehicle for strictly business uses, your organization can utilize the vehicle for a tax-deductible business expense. Be sure you have the right tax team in place to ensure this is done correctly.
- Employee retention. Your employees will appreciate that you’re putting miles and wear and tear on the company vehicle instead of their own. It may feel like a small thing depending on the amount of travel your organization requires, but it can go a long way for employee morale. This in turn can lead to improved employee retention.
- Branding potential. Think of all the space you’ll have for a mobile branding opportunity if your organization owns a car! Take the time to plaster your company vehicle with your organization logo and you’ll have a driving billboard to help keep your company visible in a great way.
Cons of Providing Company Cars
- Maintenance. As with any car, maintenance can sneak up on you and require attention. This could create issues for your organization if the employee driving the car takes it in, or if the company assigns someone to do so. Facilitating and paying for all the maintenance and upkeep a company car may require can become time-consuming.
- Increased liability. Not only must you ensure you have the appropriate coverage for employees who are driving the company car, a second con is the liability from the risk of the employee driving the car in the first place.
- Administrative burden. Keeping track of company cars can be a huge undertaking. If your organization allows employees to use the car for business and personal use, the tax benefits could get messy. Be sure to hire the appropriate people to protect your organization from any risk and liability issues, which could add a substantial administrative burden overall.
How to Establish and Manage a Company Car Policy
Let’s dive into what it should look like to set up and maintain your company car policy.
Step 1: Define the Objective
Take some time to clearly define what you envision the policy will do for your organization and why you’re doing it. Are you doing this because you have a lot of travel in your organization and don’t want employees driving their own cars? Are you doing it for the potential tax benefits? Are you doing it to increase morale? Perhaps it’s a mix of all of the above. Once you clearly define the objective behind the policy to those helping establish it, you can move on to the nuts and bolts of the policy itself.
Step 2: Set Parameters
For your company car policy, you’ll need to answer questions like:
- Who will be eligible for the car?
- How will you define who gets to use it?
- Are there any black out days that employees cannot drive the cars?
Consider answering these questions and setting up parameters that will be clear for your employees to understand. Perhaps you establish that only managers and above are allowed to have the company car, but dig deeper and establish how you’ll pick one manager over another should the issue arise. Will it be based on who asked first? Will it be based on distance to the destination? WIll you choose seniority to make your decision? Be sure to answer all those questions and clearly define the parameters. Best practice usually falls to first come, first served, but after that defaults to the employee who is driving the farthest. These tips can help set your organization up for success as you define the parameters for the company car policy.
Step 3: Clearly Define Responsibilities
This includes both employees and the organization. Explain to the employee the expectations for their use of the car. These can include things like: obeying traffic laws, no food in the vehicle, or no non-employees in the vehicle. Also state the employer responsibilities so the employee can see that it’s a two way street. Define that the employer will be in charge of things like: keeping the vehicle clean, filling it with gas regularly, or ensuring it is up to date on maintenance. Having clearly defined responsibilities for both parties is critical for the policy to stick.
Step 4: Assign an Owner
Even though this is a company car owned by the organization, you’ll want to delegate someone to own the company car policy, the ins and outs including all updates, and all the administration that comes along with it. This person or people within your organization will be in charge of checking the car in and out and fulfilling the responsibilities your company has assigned to the organization. They could be the ones getting gas and regular maintenance as well as the day to day checking in and out of the vehicle with employees. The bandwidth of your employees will drive if this is one or multiple people, but ensure there is no disconnect between employees if there is more than one person handling the administration of the policy.
Step 5: Evaluate and Update
You may have high hopes for this policy, but regular evaluations will make sure it continues being worth it. Maybe it’s been a great tax benefit and your employees see the value, so the company car policy sticks around for another year. Be sure to evaluate the effectiveness of the policy and make any updates at least yearly if not more frequently. Take the time to find if there are issues with the check in and out process, if employees are frustrated with the car being empty, or if employees aren’t able to use the car as much as needed. Find the pain points of the policy and do your best to improve them to ensure it is a benefit to your organization and your employees.
Tax and Legal Requirements of Company Cars
Company cars come with federal and potentially state legal requirements your organization should be aware of to maintain compliance.
Business vs Employee Use
As mentioned previously, if a company car is strictly used for business purposes, the IRS clearly states you may deduct its entire cost of ownership and operation as an organization. But if you use the car for business and personal use, only the cost of the business use will be allowed for deduction. You’ll want to keep a close eye on this and use the easiest method of calculating the mileage for business vs. personal use to maintain compliance with your company car.
Record Keeping
The record keeping requirements defined by the IRS are applicable to your company car. You’ll want to maintain your records in accordance with this federal law, meaning keeping all employment tax records for at least 4 years after the tax is due or is paid, whichever is later. As your taxes may be a bit more detailed with the addition of the company car, make sure you maintain the necessary records for the appropriate length of time to stay compliant.
Insurance Requirements
As with any vehicle, you need auto insurance on your company vehicle. Depending on how you have defined your company policy, you may need business insurance on the vehicle as well. This goes beyond auto insurance and protects the employee driving the vehicle on a different level than standard auto insurance. Since the vehicle is generally registered under the business, don’t overlook this important requirement of company cars. The employee driving the vehicle is not the one holding the insurance policy of the vehicle, so ensure you have the appropriate business insurance to protect them when they get behind the wheel.
Salary Laws
While the Department of Labor (DOL) makes it clear that driving to and from work is not considered “hours worked” and therefore employees do not need to be compensated for that time, it doesn’t end there. If you have a company car policy, consider that you may have to pay employees for the time they are traveling in the company car. The DOL clearly states that “time spent traveling during normal work hours is considered compensable work time,” so if your employee is on the clock and takes the company car to your satellite office, they should be compensated for that time. Stay up to date on the requirements as an organization. Depending on how the policy is laid out and the driving distances, these will all play a part in this legal requirement.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
Eddy’s HR Mavericks Encyclopedia
Company Car
Do your employees drive for work regularly? Are you trying to find a solution that doesn’t require putting miles on personal vehicles? Is there a way to make work driving more attractive to new hires? Perhaps it’s time for your organization to implement a company car. Read on to learn more!
What Is a Company Car?
Some businesses use a company car as an added perk for their employees. A company car can often be used for business or personal use depending on how your organization chooses to use this benefit, but the car should be registered to the business. Most organizations that move forward with providing company cars to employees do so because of the travel directly related to their work.
Pros and Cons of Providing Employees With Company Cars
As with any decision your organization makes, there will be positives and negatives to consider with providing company cars to employees. Let’s review some of those below.
Pros of Providing Company Cars
- Tax exemption. If your employees are using a company-owned vehicle for strictly business uses, your organization can utilize the vehicle for a tax-deductible business expense. Be sure you have the right tax team in place to ensure this is done correctly.
- Employee retention. Your employees will appreciate that you’re putting miles and wear and tear on the company vehicle instead of their own. It may feel like a small thing depending on the amount of travel your organization requires, but it can go a long way for employee morale. This in turn can lead to improved employee retention.
- Branding potential. Think of all the space you’ll have for a mobile branding opportunity if your organization owns a car! Take the time to plaster your company vehicle with your organization logo and you’ll have a driving billboard to help keep your company visible in a great way.
Cons of Providing Company Cars
- Maintenance. As with any car, maintenance can sneak up on you and require attention. This could create issues for your organization if the employee driving the car takes it in, or if the company assigns someone to do so. Facilitating and paying for all the maintenance and upkeep a company car may require can become time-consuming.
- Increased liability. Not only must you ensure you have the appropriate coverage for employees who are driving the company car, a second con is the liability from the risk of the employee driving the car in the first place.
- Administrative burden. Keeping track of company cars can be a huge undertaking. If your organization allows employees to use the car for business and personal use, the tax benefits could get messy. Be sure to hire the appropriate people to protect your organization from any risk and liability issues, which could add a substantial administrative burden overall.
How to Establish and Manage a Company Car Policy
Let’s dive into what it should look like to set up and maintain your company car policy.
Step 1: Define the Objective
Take some time to clearly define what you envision the policy will do for your organization and why you’re doing it. Are you doing this because you have a lot of travel in your organization and don’t want employees driving their own cars? Are you doing it for the potential tax benefits? Are you doing it to increase morale? Perhaps it’s a mix of all of the above. Once you clearly define the objective behind the policy to those helping establish it, you can move on to the nuts and bolts of the policy itself.
Step 2: Set Parameters
For your company car policy, you’ll need to answer questions like:
- Who will be eligible for the car?
- How will you define who gets to use it?
- Are there any black out days that employees cannot drive the cars?
Consider answering these questions and setting up parameters that will be clear for your employees to understand. Perhaps you establish that only managers and above are allowed to have the company car, but dig deeper and establish how you’ll pick one manager over another should the issue arise. Will it be based on who asked first? Will it be based on distance to the destination? WIll you choose seniority to make your decision? Be sure to answer all those questions and clearly define the parameters. Best practice usually falls to first come, first served, but after that defaults to the employee who is driving the farthest. These tips can help set your organization up for success as you define the parameters for the company car policy.
Step 3: Clearly Define Responsibilities
This includes both employees and the organization. Explain to the employee the expectations for their use of the car. These can include things like: obeying traffic laws, no food in the vehicle, or no non-employees in the vehicle. Also state the employer responsibilities so the employee can see that it’s a two way street. Define that the employer will be in charge of things like: keeping the vehicle clean, filling it with gas regularly, or ensuring it is up to date on maintenance. Having clearly defined responsibilities for both parties is critical for the policy to stick.
Step 4: Assign an Owner
Even though this is a company car owned by the organization, you’ll want to delegate someone to own the company car policy, the ins and outs including all updates, and all the administration that comes along with it. This person or people within your organization will be in charge of checking the car in and out and fulfilling the responsibilities your company has assigned to the organization. They could be the ones getting gas and regular maintenance as well as the day to day checking in and out of the vehicle with employees. The bandwidth of your employees will drive if this is one or multiple people, but ensure there is no disconnect between employees if there is more than one person handling the administration of the policy.
Step 5: Evaluate and Update
You may have high hopes for this policy, but regular evaluations will make sure it continues being worth it. Maybe it’s been a great tax benefit and your employees see the value, so the company car policy sticks around for another year. Be sure to evaluate the effectiveness of the policy and make any updates at least yearly if not more frequently. Take the time to find if there are issues with the check in and out process, if employees are frustrated with the car being empty, or if employees aren’t able to use the car as much as needed. Find the pain points of the policy and do your best to improve them to ensure it is a benefit to your organization and your employees.
Tax and Legal Requirements of Company Cars
Company cars come with federal and potentially state legal requirements your organization should be aware of to maintain compliance.
Business vs Employee Use
As mentioned previously, if a company car is strictly used for business purposes, the IRS clearly states you may deduct its entire cost of ownership and operation as an organization. But if you use the car for business and personal use, only the cost of the business use will be allowed for deduction. You’ll want to keep a close eye on this and use the easiest method of calculating the mileage for business vs. personal use to maintain compliance with your company car.
Record Keeping
The record keeping requirements defined by the IRS are applicable to your company car. You’ll want to maintain your records in accordance with this federal law, meaning keeping all employment tax records for at least 4 years after the tax is due or is paid, whichever is later. As your taxes may be a bit more detailed with the addition of the company car, make sure you maintain the necessary records for the appropriate length of time to stay compliant.
Insurance Requirements
As with any vehicle, you need auto insurance on your company vehicle. Depending on how you have defined your company policy, you may need business insurance on the vehicle as well. This goes beyond auto insurance and protects the employee driving the vehicle on a different level than standard auto insurance. Since the vehicle is generally registered under the business, don’t overlook this important requirement of company cars. The employee driving the vehicle is not the one holding the insurance policy of the vehicle, so ensure you have the appropriate business insurance to protect them when they get behind the wheel.
Salary Laws
While the Department of Labor (DOL) makes it clear that driving to and from work is not considered “hours worked” and therefore employees do not need to be compensated for that time, it doesn’t end there. If you have a company car policy, consider that you may have to pay employees for the time they are traveling in the company car. The DOL clearly states that “time spent traveling during normal work hours is considered compensable work time,” so if your employee is on the clock and takes the company car to your satellite office, they should be compensated for that time. Stay up to date on the requirements as an organization. Depending on how the policy is laid out and the driving distances, these will all play a part in this legal requirement.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
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