A company car is a vehicle provided by the employer to an employee for work purposes. There is no statutory right to a business car; it is a matter between the employer and the employee. It is important to understand its advantages and disadvantages since they affect the employee’s taxes, insurance, overall expenses, and the company’s budget and policy.
Types Of Company Cars
Company cars have become a popular incentive for employees and are also an essential tool for many companies in the modern business world. Company cars are classified into two main categories. These are owned company cars and leased company cars.
Owned Company Cars
Owned company vehicles are the ones that the company owns outright. They are often bought with company funds and registered in the corporation’s name. These vehicles are widely used for several purposes, such as transporting goods or personnel, attending meetings with clients, and running errands.
- Offer great flexibility
- Helps the company save on costs
- Increases brand awareness
- High maintenance costs
- Higher depreciation value
Leased Company Cars
Leased company vehicles are vehicles that companies rent from leasing agencies for a specified time, usually two-five years. These vehicles are often brand new, and companies can pick from a variety of makes and models.
- Low upfront costs
- You get regular upgrades
- They have tax benefits
- They have mileage restrictions
- You end up paying more for them
Which Type of Company Car is Best for Your Business?
The choice to own or lease company cars is largely decided by the demands of the company. Owning could be the most cost-effective alternative if your business needs a fleet of vehicles for everyday operations. However, if you just need a few vehicles for special occasions, leasing might be a better alternative.
Benefits of Having a Company Car
A company car offers numerous advantages to both the employer and the employee. Here are a few examples:
Arguably the most evident benefit of company cars is increased mobility. With company cars, employees can attend business meetings and appointments more conveniently and easily. This is particularly useful for people who regularly travel long distances for work. Company cars allow employees to focus on their work and be more productive by minimizing the stress and difficulty of travel.
Another key advantage of company cars is their low cost. By providing a company car, companies can restrict their employees’ use of personal cars. Workers on the other hand save money on gas, maintenance, and other vehicle-related costs. Furthermore, companies can negotiate better vehicle insurance deals than individual employees, leading to substantial cost savings.
A company car also boosts productivity. With a company vehicle, employees can spend less time worrying about transportation and more time focusing on their work. This is particularly handy for salespeople and other professionals who are constantly on the go.
Providing company cars to employees boosts the company’s professional image. A well-kept company car with your company insignia emblazoned onto it may impress clients, customers, and business partners. It also allows you to distinguish yourself from your competitors.
Having a company car has substantial tax benefits. In many cases, the cost of the company car, including expenses such as fuel, maintenance, and insurance, can be deducted as a business expense. Furthermore, the employee may be able to receive a tax reduction for the personal use of the vehicle.
In addition to the benefits listed above, having a company car can have an impact on employee remuneration packages. Access to a corporate car might be considered a useful advantage that helps employers attract and retain talented employees. In some cases, employers provide employees with the liberty to choose between a company car and a better income, allowing them to pick the option that best meets their needs.
Tax Implications of Company Cars
While a company car is a great convenience, it also has tax implications for both the employer and the employee.
Employer Tax Implications
A company car given to an employee is a taxable benefit that has to be declared on Form W-2. Benefits are determined based on the fair market value of the vehicle, and employers must deduct Social Security, Medicare, and income taxes from the employee’s wages.
Employee Tax Implications
On the employee side, the value is determined using the car’s current market value and the percentage of personal use. The employee has the option of paying taxes on the corresponding value or having the amount deducted from their salary.
Deducting Company Car-Related Expenses
Employers and employees can deduct some of the company car expenses from their taxes. Employers can deduct expenses such as petrol, oil, repairs, and insurance costs. Employees on the other hand can deduct mileage, parking, and toll fees.
Drawbacks Of Having A Company Car
Here are some of the downsides of having a company car.
When driving a company vehicle, you are constantly under surveillance. Installing GPS tracking devices or cameras to monitor employee driving activity is a big concern to employees.
With a company car, you have an added obligation to maintain the vehicle in good working order. You are responsible for keeping it clean, and ensuring that it is safe to drive.
Limitations on Personal Use
You may have a company car, but you may not be allowed to use it for personal purposes. Some companies limit employees’ usage of company vehicles to business purposes alone. This might be restrictive to most employees.
Tips for Mitigating These Drawbacks
- Set clear guidelines and boundaries: Companies need to communicate explicitly with employees on company car policies. This includes what constitutes private use and what is not.
- Establish regular maintenance schedules: Companies should also arrange regular maintenance plans to keep company vehicles in excellent condition. This will help reduce the likelihood of breakdowns and extends the life of the vehicle.
- Offer training on safe driving practices: Employers need to provide training on safe driving techniques to employees. This will help them avoid accidents and lower the risk of vehicle damage.
- Consider alternative transportation options: In some scenarios, alternate forms of transportation, such as public transit or carpooling, may be more convenient for employees. Companies should think about these alternatives if they want to reduce the number of company cars on the roads.
- Provide flexibility: Employers should think about removing some restrictions on how employees should use company vehicles. This includes allowing employees to use their vehicles for personal purposes on occasion or offering mileage reimbursement programs to employees.
Company Car Policies and Guidelines
Standard regulations and guidelines for company cars might differ from one company to another, but most of them frequently involve the following aspects.
- Eligibility: Not every employee is eligible for a company vehicle. This is typical of senior executives, sales representatives, and other employees who travel frequently for business.
- Use: Corporate cars are usually provided purely for corporate purposes. Personal use may be allowed in certain circumstances, but it must be limited and pre-approved by the company.
- Maintenance and Repairs: The company car is maintained and repaired by the company. The frequency of maintenance, the types of repairs covered, and the reporting procedure for any problems or damages may all be specified in the policy.
Consequences of Violations
Violations of the company car policy may lead to penalties, including termination, and being held liable for any damages or costs incurred.
Other relevant laws and guidelines that businesses should follow when providing company vehicles include the following.
- Safety Regulations: The company should ensure that the company car meets all safety regulations and is regularly inspected for compliance.
- Data Protection: Companies should have policies in place to protect employees’ privacy and comply with data protection laws.
How to Care for and Maintain a Company Car
Here are some tips for keeping a company car in good condition.
Regular Cleaning and Detailing
Cleaning the car’s exterior and interior regularly helps to prevent dirt and dust from building up which can damage the paint and upholstery over time.
Tire rotations, alignments, and pressure checks must be carried out periodically to keep your vehicle drivable and fuel efficient. You should also check tire pressure and tread depth.
Follow the manufacturer’s recommended maintenance schedule for oil changes, fluid checks, and other routine maintenance procedures. This will save you money on future maintenance and maintain your vehicle in good working condition.
Report Issues Promptly
If you notice any problems or damage to your company vehicle, inform your supervisor or fleet manager right away. You must adhere to the company’s repair and maintenance requirements to keep your vehicle in good condition and avoid future damage.
Protect the Car
Consider using Shevron’s dashboard, seat, and console covers to protect your work vehicle’s interior from spills, dirt, and sun damage. This increases the resale value of the vehicle and improves passenger comfort.
A company car can be an incredibly useful asset. It does, however, impose obligations and expenditures which you should carefully examine and manage. Understanding and effectively maintaining a business vehicle will help you to reap the benefits mentioned in this article. Failing to maintain it, on the other hand, may result in legal and financial complications.