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How Much Is A Typical Car Allowance For A Salesperson?



What is the typical car allowance for a salesperson? The answer is straightforward yet unsatisfying: the usual amount varies widely according to geographic region, industry norms and standards, and macroeconomic factors like transportation and fuel prices. There are as many ‘typical’ car allowances for salespeople as there are manufacturers and suppliers that employ them.

That’s the long answer. Fortunately, we can reduce the complexity by relying on a few rules of thumb. If your job requires you to calculate the typical car allowance for a salesperson to determine costs for your fleet, read on – we’ll discuss common factors as well as pitfalls and a few pro tips.

Factors Influencing Car Allowance Amounts

The overall most important factors that influence car allowance amounts in the United States are:

  • Local and regional fuel and transportation costs
  • Size of organization
  • Industry type and industry standards

These aren’t the only factors that influence the average car allowance in the U.S. Keen managers will already know that seasonal price fluctuations, the state of regional infrastructure, and complicating variables – such as labor union membership – all play an essential role in determining how much a salesperson receives for a vehicle stipend.

However, these are the most important factors and can be weighed more heavily in determining the proper reimbursement amounts. We’ll break down each below.

Local And Regional Fuel And Transportation Costs

When in Rome, do as the Romans do, as the idiom goes, and the saying holds for this instance: the most critical factor influencing the standard car allowance sum for salespeople is the geographical location. Local/regional fuel and transportation costs affect the price of every consumer good and service available anywhere in the world. In today’s supply-side economic environment, goods and services are produced wherever they can be made affordably and distributed via complex supply chains.

These complex supply chains ensure much more exposure to fuel cost fluctuations at every level of the economy. Salespeople comprise a vital part of this delivery network. With each sales team member responsible for their regional node on the distribution network, the average car allowance can vary even between two adjacent regions in the same state.

That’s one reason programs like FAVR have become so popular for businesses offering car allowances. Each FAVR disbursement calculates local fuel cost and mileage to produce a fair representation of local economic conditions and adjusts payments accordingly.

Size Of Organization

This factor is relatively self-explanatory. However, we’ll recap it in case you’re reading this before you’ve had your second coffee.

Larger organizations, such as multinational corporations, will have more complex distribution and supply networks. They will have a greater variety of products in need of selling to a greater variety of markets. They’ll also have resources to devote to more complex vehicle allowance programs that provide savings when applied to large numbers of drivers, which will change the average car allowance figure for salespeople from region to region.

If you are a small business owner running a regional paper distribution company that employs five people, the overhead cost for designing and maintaining a FAVR program may need to be clarified economically. But if you have fifty or more employees, for example, the equation changes in your favor to run FAVR.

Industry Type And Industry Standards 

Closely related to the organization size factor is the type of industry and whether that industry has established norms and standards concerning salespeople and car allowances.

The pharmaceutical industry, for example, relies a great deal on its regional representatives, and there are standard reimbursement structures that provide incentives for client retention and generation. Industries that depend less on employee mileage – such as hospitality and customer service – tend to have lower car allowance payments, if any. 

Calculating A Typical Car Allowance

According to the Employer Costs for Employee Compensation Survey, released by the U.S. Bureau of Labor Statistics in June 2023,[1] private industry sources reported that 69 percent of total compensation was provided in wages and 31 percent in benefits.

Of those benefits, 3.7 percent of total compensation was provided for ‘supplemental benefits.’ Car allowances fall under the subcategory of ‘nonproduction bonuses,’ defined by the Bureau of Labor Statistics as “[any] payments to employees not directly related to individual employee productivity.” [2]

A car payment is considered ‘payment instead of benefits’[3] as they are a replacement payment for an expected benefit – in this case, a company car.

If we examine the data on individual sectors and their average benefit payments, we observe that some industries have higher reported rates of supplemental pay. Construction, transportation, and manufacturing industries, for example, all have higher rates of supplemental income than the service-providing industries. [4] 

This data needs to provide us with a figure for a typical car allowance, as these statistics are collected to provide a broad look at employment finances on a national scale.

But, in line with the national statistics on supplemental pay, we could expect a typical car allowance to amount to 4% of gross pay. For a salesperson making $75,000 yearly, this could amount to $3,000 per annum.

Meanwhile, internal research at Cardata reveals the average car allowance to be higher. We have discovered that the average car allowance is about $600 per month in the US. Note, though, that this is only accessible to employees through tax-free car allowances. If the allowance is taxed, the figure is significantly reduced.

Benefits And Challenges – Different Approaches For Car Allowances

The average car allowance for a salesperson in your field will be determined by these complex factors discussed above. They will also change depending on your industry and other variables, such as the depreciation of your vehicle.

We’ll provide a quick overview of the different options for fleet managers when choosing a car allowance program and link to other articles we’ve written where we discuss these programs in detail.

  • Flat-rate monthly car allowance. This is the simplest model, but as we’ve written here, it will most likely be taxed by the Internal Revenue Service after the fact.
  • Mileage-based car allowance or Cents per Mile. This simple model provides broad coverage for all sorts of jobs but may be costly when applied on a large scale.
  • Company car versus car allowance. Fleets of company cars are necessary for industries that require temperature control or specific transportation requirements but may not be cost-effective in today’s competitive business environment.
  • Fixed And Variable Rate (FAVR). This is the most complex model as well as the most cost-effective. This model provides the most accurate payments and equalizes discrepancies in pay for employees who log more miles than others. However, implementing such a program requires expert advice and is only available to businesses with more than five participating drivers.

Tax Compliance For Car Allowance Payments

Having read this article, you may wonder, “What is required for compliance for a typical car allowance program?” The Internal Revenue Service offers businesses multiple options for compensating salespeople for work-related driving.

Each vehicle has its own reporting and compliance requirements. For both FAVR and cents-per mile programs, a manager must oversee monthly reports and ‘adequate documentation’ must be kept for four years after filing in case of audit.[5]

If you’re interested in learning more about legal and tax compliance issues for the typical car allowance, we have a broad array of resources for your reading pleasure here.

Conclusion: Driving Things Home

Car allowance payments can be a simple way of compensating your sales team for miles driven on business. They also can lower your business’s overhead costs, reduce exposure to hefty insurance payments and premiums, and ensure your employees receive fair reimbursements for their labor.


[1] Employer Costs for Employee Compensation,  June 2023 

[2] National Compensation Survey | U.S. Bureau of Labor Statistics 

[3] National Compensation Survey | U.S. Bureau of Labor Statistics 

[4] Employer Costs For Employee Compensation | U.S. Bureau Of Labor Statistics  

[5] Topic No. 305, Recordkeeping | Internal Revenue Service

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 nor accountants nor agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: For Cardata’s terms of service, go here:

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