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.
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.
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.
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
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