Company Car vs Car Allowance
Choosing between company cars and car allowances isn’t always an easy choice, but it’s an important one. Businesses value flexibility, cost reduction, risk mitigation, and growth, so let's dive in and explore the best solution for you.
What is a company car?
Company cars are vehicles provided by employers to employees for business use. They're often seen as a perk of the job, offering convenience and reliability. However, they come with their own set of considerations and costs.
Alternatively, employers may provide employees with the option to use their personal vehicles for business use. That's where Vehicle Reimbursement Program (VRP) comes in.
What is a Vehicle Reimbursement Program (VRP)?
A VRP is a structured form of mileage reimbursement for employees for the business use of their personal vehicles.
Take a car allowance, for example, which is a rudimentary VRP offering stipends towards the use of your personal vehicle for business purposes, not personal use, so it doesn’t reimburse for any fixed elements like licensing, insurance, or depreciation.
On the other hand, more equitable VRPs reimburse based on exact mileage, gas, depreciation, maintenance, insurance, and more. Plus, some car allowances could mean more headaches at tax time, so administrative up-keep is necessary.
Tax-Free Car Allowance (TFCA), Fixed and Variable Rate (FAVR), and Cents per Mile (CPM)
TFCA (Tax-Free Car Allowance)
A Tax-Free Car Allowance program allows you to offer fair market reimbursements, tax-free up to the IRS standard rate when paired with Cardata’s software.
FAVR (Fixed and Variable Rate)
The most popular program choice, a Fixed & Variable Rate (FAVR) program allows you to offer accurate, fair market reimbursements to drivers completely tax-free.
CPM (Cents per Mile)
A Cents per Mile (CPM) program is great for occasional drivers. Pay on a per-mile basis using Cardata’s mobile app and service suite to reimburse your drivers with ease.
How Company Fleet compares to Tax-Free Car Allowance
Fleet of Company Cars
Insurance risk Company cars can drive up insurance costs due to the higher liability associated with business owned vehicles. When employees cause accidents in fleet vehicles, even outside of work hours, the company is responsible
Most expensive vehicle program - Maintaining a fleet of company cars can be one of the most expensive options for your business. Cars immediately depreciate in value and increase in maintenance costs
Change management - Transitioning from a company car fleet to a car allowance program requires careful change management, ideally with a partner, to ensure a smooth transition for both employee and employer
Tax-Free Car Allowance
Cost effectiveness - Car allowances are a more affordable option to company cars, reducing financial burdens on both employers and employees
Reduced administrative burden - With fewer administrative tasks involved, car allowances streamline processes and save valuable time ensuring a more scalable solution
Higher employee satisfaction - Employees appreciate the flexibility and freedom of driving their own vehicles, leading to greater satisfaction and morale
Cardata is here to help you make informed decisions about your company’s vehicle program. Whether you’re considering company cars or exploring the benefits of car allowances— or the superior FAVR program — we’ve got you covered. Let’s drive your business forward, together.
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