It’s vital to show your drivers just how much you value them. A company car isn’t the most practical route, and alternatives like FAVR can keep everybody happy – including your accountant.
As companies look for ways to attract and retain in-demand talent, employee benefits packages are becoming increasingly diverse. One such benefit that has long been a staple of many companies is the company car. However, as businesses evaluate the vehicle expenses and benefits of providing this perk, many are exploring alternatives that can still provide value to employees while reducing overall costs. This article will discuss alternatives to company cars, including less-than-convenient common-sense options, cost-efficient vehicle reimbursement programs, car allowances, and corporate car-sharing services.
Public transportation describes the system of buses, trains, subways, or trams that are available to the public for a fee. Employees can use these services to commute to work or travel to other destinations, but that’s about it. In other words, you can’t lug a shipment of goods across town on a bus, so if that’s your line of work – feel free to skip ahead.
Nonetheless, public transportation can be an excellent option for employees who work in urban areas where traffic congestion and parking are problems or who want to save money and reduce their Co2 emissions. Employers interested in this kind of alternative to company cars can provide employers with vouchers, passes, or cash alternatives. Offering these perks to all employees is undoubtedly worth considering as more and more people grow discontent with commuting as a form of labor that goes unaccounted for.
Car subscription services
Car subscription services allow users to choose from various models and pay a monthly fee for insurance, maintenance, and roadside assistance. Given that these subscriptions are paid monthly, they are pretty flexible; employees can switch cars as often as they want, depending on their needs and preferences – the environmentally-conscious workers in your cadre can even opt for electric vehicles using a service like this.
Car subscriptions, moreover, can be a good option for employees who want to drive different cars without committing to long-term contracts or ownership. Too often, people are cemented into contracts and forced to drive used cars they don’t feel safe in or new vehicles that don’t have the right feel. It’s hard to rack up business miles in a vehicle that you don’t like being in.
Corporate car-sharing services
Car-sharing is another company car scheme gaining momentum. These allow employees to acquire rental cars for business purposes on an as-needed basis; this can be more cost-effective than dealing with a leasing company that avoids the hassle of purchasing or maintaining a car fleet.
Subscribers can access a fleet of cars parked in convenient locations, typically sprawled across entire metropolitan areas. So long as they can find them, your employees can rent them by the hour or day. They only need an app to see and book a nearby car to do so. From there, all that’s left to do is unlock it with a code or a card and return it to the same or a different location once their work is done. Car-sharing can be an excellent option for employees who don’t need a car every day but still require some mode of transportation to complete an essential business-related service. Car sharing can also reduce parking costs and environmental impact.
Moreover, corporate car-sharing services can be structured in multiple ways. There are membership-based services (which require monthly or annual fees) and pay-as-you-go subscriptions.Many businesses provide company cars to their employees as a benefit or a necessity. However, company cars can be costly and complicated to manage, and they may not suit the preferences or needs of every employee. Therefore, some employers may consider other alternatives to company cars that can offer more flexibility, convenience, and savings. Sixt is a fantastic example of efficient car-sharing services that ought to be looked into by any employer serious about providing employees with convenient car-share options1.
Typically, a fleet describes when the company owns or leases a set of cars that are assigned to specific employees or shared among them. In the corporate fleet model, the company pays for the vehicles’ maintenance, insurance, fuel, and depreciation. The employees can use the cars for both personal and business use, but they may have to pay taxes on the personal use portion.
A grey fleet is a subset of this model; it describes using personal vehicles for business purposes. For example, an employee may drive their own car to visit a client or attend a meeting. On the one hand, there are a few advantages to this:
- Lower upfront costs: The employer does not have to purchase or lease vehicles, which can save money and reduce capital expenditure.
- Greater flexibility: The employees can choose the vehicle that suits their needs and preferences and use it for personal and business travel.
- Reduced administrative burden: The employer does not have to deal with vehicle maintenance, insurance, registration, or depreciation.
On the other hand, some of the disadvantages presented are:
- Higher risk exposure: The employer may be liable for accidents or damages during business travel, even if they do not own the vehicle. The employer must also ensure the vehicles are safe, roadworthy, and compliant with legal and environmental standards.
- Higher reimbursement costs: The employer has to reimburse the employees for the mileage or fuel costs of using their personal vehicles, which can vary depending on the distance, vehicle type, and fuel price.
Lower visibility and control: The employer needs more insight into the usage, performance, and location of the vehicles, which can affect fleet management efficiency and effectiveness.
Vehicle reimbursement programs
Vehicle reimbursement programs are the most common alternatives to providing company vehicles. In this model of benefit, employees are reimbursed by their employer for the costs associated with using their own vehicle. Vehicle reimbursement programs offer several benefits over traditional company car programs, including reduced administrative costs, increased employee flexibility, and greater expense control.
Several types of vehicle reimbursement programs are available, including fixed and variable rate programs (FAVR), tax-free car allowances, and cents-per-mile programs.
Fixed and variable rate reimbursement (FAVR) is a type of vehicle reimbursement or employee-owned fleet system. In this method, the employees use their own personal vehicles for work and get reimbursed by the company based on a combination of fixed and variable costs. The fixed costs include insurance, registration, taxes, and depreciation, while the variable costs include fuel, maintenance, and tires. The reimbursement rates are calculated using IRS guidelines and adjusted for geographic differences.
FAVR programs are a popular option for companies looking to provide vehicle reimbursements to their employees. According to Cardata, FAVR programs provide a fixed, tax-free refund that covers all costs associated with owning and operating a vehicle for business purposes; this includes fuel, maintenance, insurance, and depreciation. FAVR programs are popular with employees because they provide a predictable reimbursement amount that can adapt to fluctuations in fuel prices or other expenses. Both fleet and FAVR reimbursements have pros and cons for the employer and the employee. Some of the factors to consider are:
- Cost: Fleets are more expensive for the employer than FAVR, especially if the vehicles need to be more utilized or have high depreciation rates. FAVR can be more cost effective because it only pays for the actual business use of the vehicles and does not incur overhead costs. However, FAVR can also be more complex to administer and audit than fleet.
- Control: Fleet gives the employer more control over the vehicles’ quality, safety, and branding. The employer can choose the models, features, colors, and logos of the cars and monitor their usage and condition. FAVR gives the employee more control over their choice of vehicle as long as it meets specific standards set by the employer. The employee can also benefit from owning their car and having equity.
- Compliance: Fleets can expose the employer to liability and risk if the vehicles are involved in accidents or violations. The employer has to comply with various laws and regulations regarding vehicle ownership, operation, and taxation. FAVR can reduce the employer’s liability and risk by dividing it with the employee. The employee has to comply with their own insurance and tax obligations and follow the employer’s policies regarding vehicle use. Read more about fleet insurance.
- Satisfaction: Fleets can increase employee satisfaction by providing them with a free or subsidized car that they can use for personal purposes. However, some employees may prefer to avoid the limited options or restrictions that come with a company car. FAVR can also increase employee satisfaction by allowing them to choose their own vehicle and get reimbursed for their business expenses. Moreover, some employees may not want the extra hassle of tracking their fleet mileage or maintaining their fleet car.
Fleet and FAVR reimbursements are two different methods of providing vehicles to employees for work use. Fleet involves the company owning or leasing cars, while a FAVR program is an employee-owned fleet system where they bring their personal vehicles to work and get reimbursed. Each method has its benefits and drawbacks for both the employer and the employee, depending on various factors such as cost, control, compliance, and satisfaction.
Tax-free car allowances are another vehicle reimbursement program that is becoming more popular. Tax-free car allowances are cost-effective as they avoid typical company car taxes; they are a way for companies to provide employees with money for car leasing or the outright purchase of a new car – be it a standard or hybrid electric car. The allowance is tax-free up to a certain amount, which can be adjusted based on the employee’s job responsibilities and the distance they need to travel for business purposes.
Cents per Mile programs are a third type of vehicle reimbursement program that is gaining popularity. Cents per mile programs reimburse employees based on the business mileage they incur. The reimbursement rate is typically based on the IRS standard mileage rate, which is adjusted annually. Cents per mile programs are popular with employees because they provide a straightforward way to calculate reimbursement amounts.
Another alternative to providing company cars is to offer car allowances to employees. A car allowance is a set amount of money provided to employees to help cover the costs of owning and operating a vehicle for business purposes. Car allowances offer several benefits over traditional company car programs, including reduced administrative costs and greater employee flexibility.
Car allowances can be structured in several ways, including as a fixed amount or as a percentage of an employee’s salary. This can help companies better control their expenses while providing employees with the resources needed to perform their job duties. It is important to make your car allowance tax-free, otherwise, you could be taxed on the benefit. To learn about how to make car allowances tax-free, follow the link.
As companies evaluate the costs and benefits of providing company cars, they increasingly turn to alternative options that can provide similar benefits while reducing overall costs. Vehicle reimbursement programs, car allowances, and corporate car-sharing services are all popular alternatives companies can consider.
Vehicle reimbursement programs are a popular choice for companies because they offer a predictable reimbursement amount that covers all the costs associated with owning and operating a vehicle for business purposes. Car allowances provide employees with a set amount to cover the costs of owning and operating a car for business purposes. At the same time, corporate car-sharing services allow employees to rent vehicles as needed.
Ultimately, the best option for a company will depend on their specific needs and goals. Companies should evaluate their current program and determine if there are opportunities to reduce costs while still providing employees with the resources they need to perform their job duties. By exploring alternative options, companies can find a solution that works best for them while still providing value to their employees.
Disclaimer: nothing contained 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 nor accountants nor 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.