The 6 Most Commonly Used Company Car Programs

Undoubtedly, one of the biggest challenge facing businesses today is calculating and managing the expenses associated with company car programs. Although there are several different variations used by businesses, the following information explains and offers insight into the commonly used company car programs.

1.       Company Owned Vehicle

With company owned company car programs, the employer purchases the vehicle, provides it to the employee, and takes care of all of the costs, such as licenses, fuel, repairs, maintenance, and more. Since the employee essentially keeps the vehicle, their personal-use of the vehicle is itemized as taxable income.

Top Benefits

  • The use of a fleet service card may offer discounts for maintenance and fuel expenses.
  • The organization can control the image of the company by controlling the type of vehicle operated by their employees who deal with customers.
  • Employees see company-provided vehicles as an additional employee benefits.
  • This model is the most expensive of all business vehicle programs.
  • Company owned vehicles require a significant outflow of cash that could be used for other business purposes.
  • The employer essentially pays for the business costs as well as the personal costs related to the vehicle.

Top Challenges

  • This model is the most expensive of all business vehicle programs.
  • Company owned vehicles require a significant outflow of cash that could be used for other business purposes.
  • The employer essentially pays for the business costs as well as the personal costs related to the vehicle.

2.       Company Leased Vehicle

Company leased company car programs work very similar to company car purchases. In comparison to a company purchased vehicle, the company lease option is the next most expensive business vehicle program.

Top Benefits

  • Employees often see this option as an employee benefit.
  • The organization retains a strong brand image by controlling the vehicle being presented to customers.
  • Some companies charge employees a Personal Use Charge, which reduces the total tax paid.
  • Leases account for a significant amount of company resources that affect the bottom line.
  • This program comes with an added level of risk due to being in the fluctuating leasing environment.
  • Leased vehicles cannot be scaled to meet the needs of fluctuating staff levels.
  • Leased vehicles represent a significant cash outflow and may be a major burden to the bottom line of the organization.
  • The employer essentially pays for the business related costs and the employee’s personal use costs.

Top Challenges

  • Leases account for a significant amount of company resources that affect the bottom line.
  • This program comes with an added level of risk due to being in the fluctuating leasing environment.
  • Leased vehicles cannot be scaled to meet the needs of fluctuating staff levels.
  • Leased vehicles represent a significant cash outflow and may be a major burden to the bottom line of the organization.
  • The employer essentially pays for the business related costs and the employee’s personal use costs.

3.       Flat Monthly Payments

With flat monthly payments company car programs, the employee provides their own vehicle and are allotted monthly allowances. This allowance is an amount predetermined by the company regardless of geographic region or other factors.

Top Benefits

  • This method offers simplicity in administration.
  • Flat monthly payments tends to favor the company.
  • Flat monthly payments typically do not account for regional variations in taxes, gas prices, and other associated charges
  • Flat monthly payments are subject to employment taxes for employers and employees.

Top Challenges

  • Flat monthly payments typically do not account for regional variations in taxes, gas prices, and other associated charges
  • Flat monthly payments are subject to employment taxes for employers and employees.

4.       Flat Rate Plus a Fuel Card

The Flat Rate Plus Fuel Card business vehicle program entails the employee using their own vehicle. With this program, the owner of the vehicle is responsible for the depreciation, financing, title, licensing, and insurance of the vehicle. The employer sets and pays the driver a flat rate, which is designed to offset a percentage of these expenses. This plan is almost identical to the Flat Rate Plan, except this program entails the employer providing a fuel card for fuel and sometimes the maintenance expenses.

Top Benefits

  • This method is relatively simple to administer.
  • The fuel card for the employee represents an easy way of tracking and monitoring fuel expenses.
  • Difficulty in setting the flat monthly rate, making adjustments for regional expenses and accounting for depreciation of higher mileage vehicles.
  • The flat rates are subject to employment taxes.
  • Difficulty in determining how to account for the employee’s personal driving and business driving.
  • Increased and unpredictable expenses with a fuel card due to weekend and evening employee personal travel.

Top Challenges

  • Difficulty in setting the flat monthly rate, making adjustments for regional expenses and accounting for depreciation of higher mileage vehicles.
  • The flat rates are subject to employment taxes.
  • Difficulty in determining how to account for the employee’s personal driving and business driving.
  • Increased and unpredictable expenses with a fuel card due to weekend and evening employee personal travel.

5.       Cents Per Mile

Instead of offering a flat rate, the Cents Per Mile reimbursement model pays a specific rate per each mile driven by the employee-owned vehicle. This model is also known as the “driving for dollars” model.

Top Benefits

  • Offers employers a method of reimbursements that is non-taxable.
  • This program is very easy to administer, understand, and has a very predictable model.
  • This method can be exceedingly expensive for a force of regular drivers.
  • If a driver has lower annual miles, this model typically underpays the driver. At higher mileages, this model overpays so much that the driver could purchase another vehicle.

Top Challenges

  • This method can be exceedingly expensive for a force of regular drivers.
  • If a driver has lower annual miles, this model typically underpays the driver. At higher mileages, this model overpays so much that the driver could purchase another vehicle.

6.       Fixed & Variable Reimbursement

As the most recognized of the company car programs, this model entails the employee driving their own vehicle, receiving fixed amount and being reimbursed for operating costs of the vehicle on a regional cents-per-mile basis. This model is supported by the IRS through Rev Proc 2010-51 and Publication 463.

Top Benefits

  • This model is the most cost sensitive and effective.
  • This model takes into to account both the fixed and variable expenses accrued for operating a vehicle for business purposes.
  • This practice allows employers to develop sound policies considering the fixed costs as well as geographic fluctuations in operations costs.

While understanding company car programs can be relatively confusing, CarData can simplify the process. Contact CarData or visit the learning center for more information about company car programs.