Are Fleet Car Programs Cheaper? 

Find out the different cost considerations of fleets of company cars compared to FAVR vehicle reimbursement programs. 

Introduction

When companies need employees to drive for work, they’ll often own or lease a fleet of vehicles to assign cars to employee drivers. Company fleets can vary widely in what types of vehicles are provided—ranging from specialized vehicles like school buses to medium-duty cars like trucks and vans for tradespeople and contractors, all the way to corporate vehicles for salespeople and other employees who regularly drive for meetings and other work-related reasons.

For companies looking to figure out how to manage employee business travel, it’s crucial to understand the options available properly. In this article, we’ll outline the pros and cons of vehicle fleets to help you better understand the cost considerations of having a fleet and make the best decision for your business. Plus, find out how company car fleets compare with vehicle reimbursement programs.

Fleets vs. Vehicle Reimbursement Programs

Fleets of company cars are the more traditional option, but it’s vital to note that they aren’t the only option. While fleets are generally ideal for organizations where specialized vehicles — like tow trucks or fire trucks — are required, it’s worthwhile to consider the benefits of a vehicle reimbursement program for businesses with more general driving needs. 

Vehicle reimbursement programs are when employees use their vehicles for work-related purposes rather than the business providing a company car. The company reimburses them for business expenses incurred using their personal vehicle through Fixed and Variable Rate (FAVR) reimbursement programs. When IRS rules for vehicle reimbursement programs are complied with and detailed mileage and expense records are tracked, reimbursements can also be tax-free. 

Understanding Fleet Costs

The cost of purchasing vehicles for a company fleet goes well beyond simply the initial upfront price. Buying multiple cars can reduce unit costs by asking for a bulk discount, but many ongoing costs are associated with having a fleet. Moreover, understanding fleet programs’ actual cost can be challenging. A range of factors affecting the fleets’ costs are often complex for companies to predict, making it difficult for organizations to budget correctly for their company car programs. 

Within vehicle reimbursement programs, companies are freed from the overhead cost of acquiring or leasing a fleet and no longer need to pay for vehicle maintenance or storage costs. Reimbursing drivers for business use can often be more straightforward and accurate by looking at business mileage incurred, insurance costs, and more. 

Administrative Costs

For both fleets of company cars and vehicle reimbursement programs, administrative needs can vary depending on your organization and vehicle situation. Managing a fleet program can be an incredibly time-consuming process for companies. However, leasing vehicles from and outsourcing to a fleet management company or fleet management software is possible. Fleet management companies can help by providing vehicles, handling insurance needs, taking care of maintenance, and more.

With a vehicle reimbursement program, administration can be significantly simplified. While administration is still needed and compliance requirements are to be met, vehicle reimbursement software can help lower the time spent internally administering and managing a vehicle reimbursement program. While there is a cost associated with vehicle reimbursement software, there can be substantial benefits. For example, Cardata makes it simpler for administrators to review and approve business mileage expenses, manage drivers on the program, and get a birds-eye view of the reimbursement program. In turn, driving administration is simplified for employees by offering automatic, GPS-powered mileage tracking.

Maintenance and Repairs

With a fleet of vehicles, the company is responsible for the cost of maintenance and repairs. This includes both preventative care and the expenses incurred in the case of any unexpected vehicle issues. Within a fleet, preventative maintenance is essential, as it’s a critical responsibility to help ensure the safety of drivers on the road. What’s more, vehicles can be a representation of the company brand. When vehicles are visibly not well-maintained, it can impact the public image.

With a vehicle reimbursement program, drivers are responsible for the maintenance associated with the personal vehicle. Companies can choose to reimburse for these variable expenses, which could be reimbursed tax-free by determining the business use percentage of a cost.

Insurance 

For all businesses with vehicle fleets, insurance is essential. The cost of fleet insurance varies greatly depending on location, vehicle types, provider, and more factors. Insurance can be provided by major car insurance providers and fleet management companies (FMCs) and can even be self-insured by the company. 

With vehicle reimbursement programs, insurance risk is often reduced since an employee driver’s insurance is often used first. It also typically costs more to insure a commercial vehicle than a personal one. By working with a vehicle reimbursement expert, you can ensure that your employees have the appropriate coverage for business use of their personal vehicles. 

Resale and Depreciation

A fleet of company cars opens up the possibility of selling back vehicles that are no longer in use. However, it’s likely that by the time the company looks to sell unused cars, they’ve significantly depreciated. 

Consider a scenario where a company cuts back on the number of employee drivers yet isn’t looking to sell. This can lead fleet vehicles to sit unused, depreciating and incurring maintenance costs—costing the company while not benefitting it. Allowing employees to use their personal cars can lessen this impact and make it more effective for driver teams to scale up or down, depending on company needs.

Additionally, the depreciation of fleets is one of the most significant expenses a company incurs with this type of vehicle program. Some vehicles retain their value better than others, but when company cars are owned, they can end up becoming highly devalued assets after time. And if vehicles are leased, companies are left without any resale value or costs to recoup.

Personal Use

It’s easy for companies to forget to factor in the personal use of fleet vehicles. When a company car is provided, employees are expected to end up using the vehicle for personal reasons — such as running errands or personal travel. It’s also important to be aware that commuting from a private residence to a workplace is considered personal use in the eyes of the IRS.

Employees who use their company car for personal reasons could be subject to personal use chargebacks to help compensate for these costs. This could lead to employee dissatisfaction and make the benefit of a company car feel less important. With that, companies can end up paying at least partially for the personal use of these vehicles.

A ratio between business use and personal use is determined in vehicle reimbursement programs to help calculate reimbursement expenses. This can help ensure that vehicle reimbursement payments are a more accurate reflection of the actual business expenses.

Conclusion 

If you’re looking at organizing your employee drivers best, it’s worthwhile to understand the options available. While providing a company car to employees is the traditional option, other alternatives exist — such as having employees use their personal vehicles and reimbursing them for business expenses with a vehicle reimbursement program. 

Vehicle reimbursement programs can provide a more accurate representation of actual business driving expenses while freeing organizations from the burden of owning or leasing their vehicles. Especially when combined with vehicle reimbursement software, companies can help make their vehicle programs efficient, compliant, and beneficial to both employees and organizations.

As each company has its own needs and goals, it’s crucial to fully understand the options available to ensure you make the best decision for your company’s unique situation. If you’re curious about implementing a vehicle reimbursement program, consider speaking with a Cardata expert to learn more.

Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers, accountants, or agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.