auto insurance

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, perhaps with some restrictions in place. However, before you hand the keys to a company car to an employee, there are certain matters to consider. Address these issues now and you’ll avoid potentially serious problems later.

What you should know before offering a company car to an employee.

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 owner’s policy.

Instead, 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 also creates an added layer of paperwork for employees. Cash is always king as it never restricts where your employees can fill the tank. Here, you must require employees to collect a receipt to submit for reimbursement.

By far the most popular way to pay for gas after cash are credit cards. In this example, you would issue a credit card to your employee, 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 charges. 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.

Here, you can require employees to keep the vehicle clean inside and out. The company car is a reflection of your business, therefore if it looks grungy that’ll reflect poorly on your enterprise. Furnish your employees with a maintenance schedule and require that state inspections be accomplished.

You might also require internal inspections bi-annually to ensure the work has been done and that all paperwork is in order. Head off problems before they occur and you’ll avoid trouble later such as when exceeding the lease mileage limit.

If you prefer your business to handle all maintenance requirements, you can still have employees maintain a log tracking the miles driven and for listing possible problems including the check engine light. Motor club membership 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, one that you might restrict to executives, your sales team, or any other employee with special skills. 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.

Driving Considerations

So, what type of company car should you offer your employees? 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. There may even be a tax break for installing charging units on the premises. Most company cars are sedans or SUVs as these vehicles allow your employees to transport clients with ease.

As for the tax loophole on business 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 and that means employees can’t use your Chevrolet Suburban or Toyota Land Cruiser company car on their time without socking it to your business.

Lastly, 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.

Notes

Insurance Information Institute: Business Vehicle Insurance — http://www.iii.org/publications/insuring-your-business-small-business-owners-guide-to-insurance/specific-coverages/business-vehicle-insurance

Bond Street: Different Payment Methods For Your Small Business — https://bondstreet.com/blog/payment-methods-small-business/

The Horton Group: How a “SMALL Perk” Can Cause Big Problems — http://www.thehortongroup.com/resources/how-a-small-perk-can-cause-big-problems

IRS: Employer’s Tax Guide to Fringe Benefits — https://www.irs.gov/pub/irs-pdf/p15b.pdf

Business Management Daily: IRS issues tax roadblocks for vehicles —http://www.businessmanagementdaily.com/43052/irs-issues-tax-roadblocks-for-vehicles#_

See Also — 7 Ways to Trim Car Insurance

About the IIHS

The IIHS is wholly funded by numerous insurance companies ranging from smaller companies such as the Rockingham Group, Tennessee Farmers Mutual Insurance Company and Grange Insurance to such household names as GEICO, State Farm and Allstate. Additional funding is provided by several insurance funding associations.

Founded in 1959, the IIHS is an independent, nonprofit educational and scientific organization whose mission is to reduce insurance losses from crashes on America’s roads. The IIHS opened its Vehicle Research Center in Virginia in 1992 where it conducts front, rear and side tests on vehicles and assigns a rating. The institute uses crash test dummies and sled labs for vehicle testing, and also tests child booster seats. Yes, the test scores can affect your insurance premiums (more about this later), but not your uninsured motorist claim.

Five IIHS Crash Tests

Since the IIHS began testing vehicles in 1992 it has modified and expanded its crash testing to encompass additional areas of the car. Its earlier tests measured moderate overlap front crashes as well as rear crash protection to assign a head restraint rating. Side-impact and roof strength tests were added later; a small overlap front test was added in 2012.

The IIHS’ moderate overlap frontal test has a vehicle traveling at 40 mph toward a barrier. The barrier face, of aluminum honeycomb construction, measures approximately two feet tall. Behind the wheel sits a crash test dummy, one that is equal in size to the average male driver. This test has 40 percent of the total width of the vehicle hitting the barrier on the driver’s side. It then measures the impact of the crash on the vehicle as well as on the driver.

The small overlap frontal test also has the vehicle traveling at 40 mph, with 25 percent of the vehicle required to hit a 5-foot rigid barrier, similar to a vehicle hitting a fixed object such as a telephone pole. The same sized crash test dummy used in the first test is used here with the IIHS paying especially close attention to how vehicle restraint systems such as airbags and the vehicle’s safety cage protect the driver.

A side test has been used by the IIHS since 2003, one that employs a moving barrier that weighs 3,300 pounds and corresponds to the weight of a small SUV hitting the driver’s side of the vehicle. Crash test dummies similar in size to an average sized female driver as well as a child sitting in the rear seat behind the driver are used. The IIHS also conducts a roof strength test that employs a metal spike that is pushed into one side of the top of the vehicle and is required to bear a force that is four times the vehicle’s weight before reaching five inches of crush to achieve a good rating. This test mimics what a vehicle might experience in a rollover accident, something that takes the lives of thousands of people annually.

Since 1995, the IIHS has been conducting rear crash testing with an eye toward measuring the impact of front seat vehicle restraints, particularly headrests. Whiplash injuries can be minimized with improved head protection, with this test approximating a rear end collision corresponding to a 20 mph crash against a stationary vehicle.

Assigning Ratings to Evaluated Vehicles

Car manufacturers strive to meet the highest crash test ratings offered by the IIHS. It is a two-tier rating system that gives vehicles either a “top safety pick” or “top safety pick+” rating, the latter assigned to vehicles that have completed the moderate overlap front test.

To achieve a top safety pick+ rating, vehicles must have received good ratings in four of the five tests and no less than an acceptable in the fifth test. A top safety pick designation is assigned to vehicles that receive good ratings in a rollover, rear, side, and moderate overlap front tests.

Four grades are assigned with each test: good, acceptable, marginal and poor. The IIHS maintains scoring for vehicles from its earliest test years and posts that information to its website.

Ratings and Your Insurance Premium

Your chances of being injured in an accident are far greater in a lighter vehicle. And that is why the IIHS advises consumers to “pass up very small, light vehicles” in its Shopping for a Safer Car brochure. Choosing vehicles that rank higher by the IIHS will result in lower insurance premiums. You can save additional money by opting for a higher deductible, bundling your home and car insurance policies, and searching for discounts.

Vehicle safety testing helps insurers and consumers alike. Insurers assign risk based on a number of factors including your vehicle’s crashworthiness. Save money on insurance and improve your chances of surviving an accident by buying a vehicle that has a top safety rating.

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