Everything You Should Know Before Providing Company Vehicles

Everything You Should Know Before Providing Company Vehicles

When businesses gain enough traction with their development, they become more flexible in how they operate. This means that they can give certain benefits to employees that help the employee better perform the job they were hired to do. To make this possible, the company must put agreements in place and establish rules to ensure the business continues to profit from this venture. To further explore this topic, this is everything you should know before providing company vehicles.

Using the Vehicle for Fringe Benefits

Many employees who are granted the ability to use a company vehicle opt to use it as a fringe benefit. This simply means that the vehicle will have to meet the fair market value. The employee will pay the same amount to buy or lease the vehicle as they would regularly according to the standards of their geographic location and what would normally be acceptable charges for that vehicle. Having the fair market value in place avoids any unfair charges or fees that are higher than the average of the location where the vehicle will be purchased.

Consider Vehicle Allocation

This is something that most businesses will allow, but before assuming anything, it would be wise to ask the business you work for about vehicle allocation. This is a specific perk that relates directly back to the driver of the vehicle.

Let’s say you take on a company vehicle for some time. In the initial agreement, both parties make their promises, and somewhere along the way, the driver is stuck with keeping the expenses associated with owning the car and paying them on their own. If this situation happens, the driver can collect what’s called vehicle allocation.

This simply means that repairs related to wear and tear, gas mileage, or any kind of general maintenance would be considered a business expense even if you initially paid for them out of your own pocket. As such, you can consider these payments a deduction and get that money back. One way to keep some of these expenses at bay is to invest in a nice set of fleet seat covers, which will prevent any serious damage to the interior of the vehicle while you are in possession of it.

Deductions for Business Use

Deductions for business use deal in similar terms to vehicle allocation. The only thing that makes deductions related to business use different is that they impact the owner and how they choose to use the vehicle more directly. If the owner has the option to use the vehicle solely for the purpose of business, the associated expenses may be deducted in full for the term of ownership. Such activities may include driving to and from work and doing work-related activities during the workweek or during your time off.

If the company allows you to use the vehicle for both business and personal reasons, they may only deduct charges associated with business-related purposes. There are generally two methods that you can use to calculate these expenses and track your progress. The first option is called the mileage rate method, in which the owner will calculate the mileage of the vehicle and submit it to their company for reimbursement. The second option is the actual expense method, wherein the owner takes the total sum of the actual expense and submits that to their company. The standard mileage method may also use tickets for parking fees and tolls allocated while the vehicle was in use.

Policies and Insurance

Insurance is one of the most important things that a company must establish before handing off a vehicle’s keys to an employee. The first thing a business must do is check to see if the employee who will use the vehicle has their own valid license and insurance. Once this is established, they can begin to decide upon terms. Usually, businesses will have their own insurance provider, which they will prefer the employee to use and apply to their agreement. This will ultimately prevent any future legal battles from occurring after the car is passed off to the recipient.

Contracts and Agreements

Within the contract, there should be a private section that outlines the procedures that will take place in the event that an accident takes place while the company vehicle is under the ownership of the employee. This section should also state the driver’s qualifications and make note that the full contract was reviewed and approved before giving ownership to the employee.

A general statement about authorizations of the vehicle’s use, terms, and conditions should be included as well. There should also be a section on permissible and non-permissible use of the vehicle that goes over the limitations and restrictions associated with the overall use of the vehicle. If these statements are not in place, issuing a vehicle to an associate will come with the risk of something terrible happening to the vehicle while it is in possession of the owner.

Mistakes To Avoid

The first order of business is to establish a clear understanding of ownership and the responsibilities that go along with that role. When discussing this with the employee, make sure they understand that the purpose of the company vehicle is to make the business money and that it is being trusted to the employee for this purpose alone. There must be written documentation of everything to ensure the transaction is a legally binding agreement between both parties.

The recipient should understand that all care and maintenance of the vehicle will be their complete responsibility while it is under their ownership, and it will also be their responsibility to turn in all paperwork related to that maintenance so the business can allocate those expenses. In doing so, the burden of payment does not fall on the employee but instead the employer.

Running a business can be tough, especially when you’re responsible for a multitude of tasks and have hundreds of employees depending on you. That’s why we provided you with everything you need to know before providing company vehicles, as that could be a large asset that could impact your company.

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