Your business often isn’t confined to a single location. That’s why you may need your employees to be mobile. Providing a company vehicle is a common solution to this. Let’s go over the pros and cons of providing a company car.
Should you provide company vehicles?
Supplying a company car presents some benefits and challenges for businesses. Your business can make an informed decision by knowing what these pros and cons are.
Pro: Almost full control
When you provide a company vehicle, you have more control over the situation than if you were relying on an employee to provide their own car. If your business requires specialty vehicles, it may be easier to provide those. Of course, you’re still relying on the employee driving, so that still represents some risks.
Pro: Potential for branding
Providing a company car gives you the capability to extend your branding to more places. You can wrap your vehicles in company advertisements and perhaps get seen by more people.
What’s more, this gives you more control over your corporate image. If you’re trying to convey a high-end image and your employees meet clients in beat-up clunkers, that could have a negative impact on your brand. The opposite is also true if you’re trying to convey a down-to-earth brand and have employees roll up in luxury cars.
Pro: Potentially a perk for employees
While there are tax implications, a company car can be a nice benefit for employees. For some, this can eliminate the need to buy their own vehicle. It can also eliminate worries about getting to and from work, as well as make their personal transportation needs.
The Downside Of Providing Company Cars
Offering vehicles to employees does come with some potential pitfalls, though. Let’s go over what some potential negatives are for business owners.
Cons: Expensive upfront investment
Purchasing and maintaining company vehicles are expensive. This requires a large upfront investment of at least a few thousand dollars (if not more) per vehicle. You can write a lot of these costs off at tax time but you still need to come up with the investment. This can be especially challenging for small business owners.
Cons: Can be costly to maintain
Your company vehicle will need to be maintained throughout the year and that can quickly add up. This includes the expenses for repairs, services and routine maintenance. You can also throw in the cost of things like insurance. Again, many of these are deductible but these can still be challenging when it comes to small business cash flow.
Cons: Increased reporting requirements
You and your employee will have to keep more records if you provide a company car. This is especially true if the employee has unfettered access to the vehicle for personal and commuting expenses. The IRS considers this a fringe benefit and there are tax implications. At a minimum, the employee will have to keep a mileage log book.
Cons: Increased liability
Issuing company cars can open you up to increased liability. This is especially so if employees have unrestricted access to the company vehicle. At a minimum, this will require more insurance for your vehicle and potential for legal headaches if the company car is involved in an accident.
An alternative to company cars: Mileage reimbursements
A company car may make sense for your business. But, many organizations find it more cost-effective to have employees use their personal vehicles for business reasons and then provide mileage reimbursement.
This approach limits the upfront and additional costs for employees and can reduce liability. The major challenge is providing accurate mileage reports. Solutions like MileIQ for Teams can automatically log employee mileage and provide business-ready expense reports with a few taps.