Many businesses give their employees the option to choose between using a company car and providing a car allowance. For many, the decision is easy… or is it? Here’s a brief look at the pros and cons of both.
The Company Car
Any vehicle owned by the business that employees are allowed to use is called a company car . Employers determine what liberties employees can take with using the company car, whether it is strictly for business use, or for both personal and business use.
Employers can use company cars as an incentive in at least two ways. Many businesses use company cars as a reward for outstanding employees, which, in turn, could stimulate other employees to perform better. Employers and even recruiters can also use company cars to entice and attract new talent to join the business. On the other hand, everything from purchasing to insurance and maintenance would be the responsibility of the employer, and if that employee were ever to get into an accident while driving the vehicle, the employer may be liable for any damage the employee caused.
Having a company car means that the employee doesn’t have to worry about things like fuel, maintenance, tires, service, and insurance. All the major stress associated with getting a personal car would already be taken care of. However, there would be certain restrictions in terms of the type of vehicle and permissions for personal use (if any). Employees would also have to deal with fringe benefits tax. If the employee decides to leave the business the vehicle would have to be surrendered to the company.
The Car Allowance
A car allowance is essentially a stipend that’s added to the employee’s wages to cover the cost of getting a car, or to cover the costs associated with using a car. The car allowance could either pay for the purchase or lease price of the vehicle. In most cases, it could pay the total cost of fuel, service, and maintenance expenses. The latter is usually provided to employees who use their personal cars for business purposes.
Providing car allowance relieves the employer of having to deal with the process of sourcing, maintaining, and managing company cars, thereby saving the business time and money.
Having a car allowance gives the employee the freedom to choose what type of car they want. The best part is the employee is investing the allowance in an asset that he/she gets in order to keep even when he/she leaves the company. The downside to the allowance is that the employee is responsible for the vehicle from start to finish (sourcing, financing, insurance, etc. ). There is also the added responsibility of driving the vehicle for nominated business use while keeping track of kilometers, receipts, and then submitting a report or claim. Overall, there is a lot of additional work for getting a car allowance.
There are real advantages and disadvantages to both options. The one thing common is that there will be a vehicle in either situation. If you are the employer, it wouldn’t hurt get an extra advantage: use the vehicles to promote and advertise your business through car magnets from FMF!