A company car is one of the most coveted rewards in the current workplace. Company cars allow employees to avoid the inconvenience of public commuting as well as help them to save on the significant costs of purchasing their own vehicle. Studies have shown that employees receiving big-ticket benefits feel recognized and respected. In turn, they perform their jobs with more passion and motivation. Aside from achieving higher levels of productivity and profit, businesses with a corporate fleet receive a greater level of visibility for their brand and a congruent image for all their employee vehicles. Given its advantages, offering company cars to your employees may seem like a good investment. However, there are some issues to consider before taking the leap.

In Case of Emergency

A major consideration of businesses that offer company cars is the increased amount of risk and liability. Businesses are liable for any accidents that involve their fleet vehicles, even during non-working hours. According to the National Highway Traffic Safety Administration (NHTSA), most crashes occur on the weekend, with the highest occurrences on Saturday night. In the event of an accident, businesses could find themselves liable for the damage or injury of their employee as well as any other parties involved due to respondeat superior, a legal doctrine that holds an employer responsible for the wrongful acts of its employees if such an act takes place within the scope of employment. Businesses can additionally be found negligent if it is determined that they failed to exercise reasonable caution by continuing to hire employees who drive irresponsibly.

Hence, businesses must take into consideration the driving behavior of their employees and work to proactively manage fleet risks​​. Before handing the keys over to any employee, businesses should undertake a strict screening process to review driving experience and recorded traffic violations. Then, businesses should implement a vehicle safety policy that establishes the safety and performance guidelines for all drivers. This can include rules on unauthorized activities—such as driving while under the influence of alcohol or medication—and recommendations for driving at night or in inclement weather. In addition, some companies fit their fleet vehicles with tracking devices to monitor driver conduct and flag any dangerous habits. This can serve as a means to identify poor drivers before an accident happens and similarly to reward safe drivers for their model behavior.

Needless to say, comprehensive insurance coverage is essential for businesses operating fleet vehicles. While insurance policies will not eliminate the risks and probabilities of road accidents, they can definitely limit the liability exposure of a business. The minimum mandatory liability coverage for a business varies state by state, so it is important to comply with your state’s requirements in order to avoid being penalized. There is also the option for no-fault insurance in 12 states, which covers the medical expenses of your employees in an accident, regardless of the burden of blame. The no-fault system is the opposite of the liability system which only triggers a payout when a party is found to be at fault. Hence, the no-fault system is beneficial for drivers because it bypasses the litigation system and promptly releases insurance funds for any medical expenses that are incurred.

Time and Taxes

Mixing the official and unofficial use of company cars not only introduces complexity to liability management but affects how your business has to manage its tax as well. Since fleet vehicles command a substantial cost, savings on tax can make a huge difference to the bottom line. Under existing IRS regulations, business use of company cars—including vehicle registration fees, interests on auto loans, and maintenance costs—are a deductible business expense. Gasoline mileage is likewise deductible but only for business expenses, which excludes the daily home-office commute or any personal use of the car. Therefore, businesses must require their employees to keep detailed mileage records to facilitate the accurate reporting of the business and personal uses of the vehicles.

Under current IRS laws, personal use of fleet vehicles is a taxable workplace fringe benefit. This means that employees need to attribute the value derived from their personal use of a company car to their taxable income. This can be done by calculating an average lease value or by assuming the IRS standard mileage rate. However, businesses should note that the IRS standard mileage rate is adjusted every tax year and does not account for the lower fuel costs of hybrid or electric vehicles. While certain employees may be disappointed with a higher taxable income, they still save a sizable amount of money compared to purchasing a car for themselves. Hence, businesses need to negotiate and discuss the implications of company car use with their employees prior to allowing them to take the cars home.

At the end of the day, the benefits of having company fleet vehicles outweigh the basic administrative concerns. As with all aspects of a successful business, it is essential to ensure that the foundations are well prepared before taking on extra responsibility. As long as businesses have reliable legal advisors and taxation consultants, managing a fleet of company cars will be a walk in the park.