Once you’ve got people on payroll, you may very quickly learn why some companies choose to provide cars for their employees. Sound expensive? Well, it might be. However, you may be surprised to learn that in some cases, it’s actually less expensive than the alternative. Let’s dig into the pros and cons of both options.
Pros:
- You can take advantage of a slew of deductions including depreciation, maintenance, gasoline, tires and loan interest, just to name a few. We all love deductions, right?
- Any personal use is reported on the employee’s W-2 as taxable compensation.
- Insurance may be cheaper because businesses have a lot of discounts and special rates at their disposal. If you’re already providing company cars and not taking advantage of this opportunity, call your insurance broker today to discuss it.
- If the car is involved in an accident, the driver’s personal liability and the effect on his/her personal insurance rates are minimized. This puts many employees at easy when using their own car for work.
- Your employees always have the right car they need to get the job done. This is important if you are in an industry where your employees will need use of a service truck or delivery van, for example.
- You can control the image your employees project when they go to meetings or other business engagements. After all, showing up to an important meeting in a car that has “wash me” written on a dusty windshield may not present your company in the best light.
- You can brand the car with your company name and logo. This often makes your company look bigger, more established and more committed to their marketplace position. And all of those things can be used to justify charging higher prices.
- A company car can be an attractive perk for staff, resulting in a happier, more motivated team. I mean, really, who wouldn’t want a free company car?
- Providing a company car makes transportation a non-issue. This can greatly reduce those, “sorry, my car is in the shop” excuses you hear from some employees all too often.
Cons:
- Your company will most likely be liable for any accidents, whether they happen on company time or not. This is why it’s extra important to make sure driver-safety standards are established and clearly communicated before any employees drive a car in your company name.
- Purchasing multiple cars at once requires a large amount of money upfront. You can choose to lease vehicles in order to keep this cost down but that comes with a few other issues, including mileage restrictions. And if the car is damaged before you lease is up, prepare to pay a hefty fine when you turn it back in.
- Employees may be unhappy with their limited car options. For example, an employee with medical conditions who prefer a car that is more comfortable to drive for long periods of time, may need an exception to use their personal vehicle for business.
- You must be meticulous in tracking personal vs. business use. If you’re not meticulous by nature, consider investing in an app that can help you.
- You are responsible for the cost of registration and insurance. That can add up,
- The cost doesn’t go away. Company cars aren’t a one time investment. The cars will need to be maintained and eventually replaced. And the resale price is usually quite a bit lower than most hope it will be.
If you decide that purchasing company cars is not a financial possibility (or is just not the best option) for you business, the other option is to allow employees to use their personal cars for work. This decision comes with it’s own list of pros and cons, such as:
- PRO: Employees can take deductions for any work related driving expenses they are not reimbursed for.
- CON: If you are reimbursing employees for business travel, you will be forced to rely on them to give you an accurate mileage count. Be prepared for some to fudge the truth. It happens all the time.
As you can see, there are a lot of good reasons to provide your employees with company cars but ultimately, you have to decide whether that is a reasonable expense to take on. If you need help going over your business finances and deciding where to best spend your budget, contact us today for a referral to a tax professional who can help.
Next week we’ll wrap this month’s series by talking about something you may not be using to its full potential. We’ll be sharing with you some of the great virtual tools out there that could exponentially increase your productivity.
