Car Allowance vs. Company Car in the Agricultural Industry

Mobility in the agricultural industry involves transporting products and outside sales, managing equipment, and ensuring reliable distribution networks. U.S. agriculture spans from small hobby farms to large-scale commercial operations. Choosing the right vehicle benefit model can significantly impact cost efficiency and operational effectiveness. In this blog, we explore the pros and cons of company cars versus car allowances within the agricultural sector, integrating industry insights and best practices.

The Economic Landscape of U.S. Agriculture

Agriculture, food, and related industries are true economic powerhouses. In 2023, these sectors contributed approximately $1.537 trillion to the U.S. GDP, with direct farm output accounting for $222.3 billion—a testament to the industry’s extensive supply chain and distribution needs. Reliable transportation is a linchpin in this ecosystem, linking farms, processing plants, and retail markets together.

Moreover, the U.S. is the world’s second-largest agricultural trader. Exports have surged from $57.3 billion in 1998 to $174 billion in 2023, driven by high-value, consumer-oriented products like dairy, meats, fruits, and vegetables. This growth demands robust transport networks that spur additional business activity and support over 1.25 million jobs.

Defining the Options: Company Car vs. Car Allowance

Company Cars

Ownership & costs: company cars are employer-owned or leased, with the business covering maintenance, fuel, insurance, and other operating expenses. However, these benefits come with a personal use taxable component that can increase an employee’s tax liability.

Employee choice & liability: employees have little flexibility since they must use the provided vehicle. Additionally, company fleets expose employers to increased risk, including accident liability.

Most expensive mobility option: company cars tend to be the most expensive program option so they are best reserved for specialty vehicle use cases. 

Car Allowance

Fixed payment & flexibility: with a car allowance, employees receive a fixed monthly payment to put toward personal vehicle expenses. This model provides greater flexibility, allowing employees to select vehicles that best suit their needs and lifestyle. However, without proper programming, car allowances are taxed. But car allowances can also be tax-free.

To understand how a tax-free car allowance works, see this blog: What Is Tax-Free Car Allowance.

Tax efficiency & cost savings: when structured properly—often through Fixed and Variable Rate (FAVR) reimbursement programs—car allowances can be tax-optimized, potentially saving up to 30% on mobility costs.

Expense tracking: while allowances offer flexibility, they may not cover all vehicle-related expenses. Employees need to track business versus personal mileage accurately—a challenge many HR leaders face.

Technological Integration: Modern solutions like dedicated FAVR apps help streamline expense tracking and reimbursement administration.

Agricultural-Specific Considerations

Industries like food and beverage typically show high usage (averaging about 1,475 miles per month and roughly 90 trips), and agriculture may face similar high-mileage patterns—especially in sales and logistics roles. However, agriculture also presents unique challenges:

Specialized equipment—such as refrigerated trucks or heavy machinery transport—may be necessary for certain operations. For other roles, you can leverage car allowances for non-specialty vehicles.

For companies managing large fleets, outsourcing fleet leasing and management can be a strategic way to reduce overhead while maintaining compliance and efficiency.

Mileage reimbursement programs often provide a tax-free alternative to traditional allowances, offering another model to evaluate. For agricultural companies, where margins matter, saving that extra 30% on car allowance by cutting the tax is optimal.

Real-World Examples in Agriculture

Outside Sales Roles in Agriculture

Consider roles such as a Territory Agricultural Equipment Sales Lead, where extensive travel across multiple states is common, with up to 80% of the role involving on-field presence, client visits, and trade shows. Employees in these roles may benefit from a car allowance that lets them choose vehicles tailored to long-distance and rugged terrain.

For companies with drivers like this, they might consider a hybrid mobility approach, combining reimbursement and fleet options. This would allow for specialized vehicles to be owned or leased by the company directly, whereas outside sales reps could drive personal vehicles for work. 

Independent Sales Drivers

Another example is an independent sales driver representing high-performance agricultural inputs like soil amendments. This role involves in-person sales calls, field evaluations, and seasonal adaptability. These roles benefit from flexibility, making a car allowance or mileage reimbursement an ideal solution.

Decision Factors: Matching Mobility to Operational Needs

When deciding between a company car and a car allowance in the agricultural industry, consider the following:

Cost: car allowances, particularly when structured as tax-free benefits via FAVR programs, can significantly reduce mobility expenses compared to company cars.

Flexibility vs. liability: allowances boost employee choice and satisfaction, while company cars may increase employer risk through accident liability and depreciation costs.

Operational fit: the chosen mobility solution should match the diverse transportation demands of agriculture—from specialized equipment transport to extensive sales routes. A hybrid strategy that leverages both models may provide the optimal balance.

Expense tracking: effective differentiation between personal and business mileage is essential for compliance and cost control.

Conclusion

Company cars offer a hands-off approach for employees by alleviating vehicle maintenance and providing a uniform fleet but come with higher costs for the employer and limited employee flexibility. Conversely, car allowances empower employees to select vehicles that best suit their needs while potentially reducing overall company expenses—especially when tax-optimized through programs like FAVR.

For agricultural businesses, the decision should be guided by a careful analysis of operational requirements, cost structures, and the specific needs of roles ranging from high-travel sales positions to specialized equipment logistics. By aligning mobility benefits with strategic business objectives, companies can enhance efficiency, reduce costs, and support the dynamic nature of the agricultural industry.