Business Finance Tips: Fleet Cars Vs. Expensing Employee-owned Cars

As a business owner, one of the many decisions you have to make includes whether to lease fleet vehicles for business use, or whether to request employees use their own vehicles, and reimburse them for that use. Of course the decision is going to greatly depend on what kind of business you run, the amount of driving that is required, and how much employees are going to be able to deduct, in order to determine which the best choice is for each business. Each has their benefits, and each has different features that will appeal to different kinds of businesses, which have to be considered prior to making a decision as to which of the two options is right for your business.

Fleet cars –

  • With fleet cars, you are going to lease vehicles for work related use. Whether it is a taxi company, government business, courier service, or other business entity, this is a great option for many business entities. Some of the benefits with this choice include:
  • You decide on how much your employees will drive, and you decide on the lease terms based on the amount of use the fleet cars will get.
  • Business owners can choose uniform vehicles, meaning all the cars they lease will look the same, and have the company logo on them (which is not the case with employee owned cars).
  • You can decide on the type of car that is most suited for your line of business, and the desired uses for the vehicles for your business.
  • You can choose fuel efficient models, which will save on the price of petro.
  • Insurance providers will offer some kind of discount for certain business entities, based on the number of cars they put on the road, and the employees that drive them.

With this option, business owners don’t have to worry about damage to the vehicles (of course they have to be repaired), as they would with employee owned cars. As far as insurance is concerned, they are not responsible for insuring drivers, only the vehicles which can also save them on the expenses. Uniformity is a great benefit of fleet cars; since you can choose all the same cars, with your logo on them, it gives a uniform and good impression of the company.

cars

On the flip side, it might cost more for the business owner to rent fleet cars. Since you have to pay per mileage, if drivers go over a set number of miles, you are paying additional costs. This might not be the best option if you only need a couple of cars, since you are not going to get any kind of discount from the lease company. Depending on the amount of driving, and the type of products or services being transported, it might not be beneficial to pay for the lease, if the vehicles are not going to be used that often by the employees.

Employee owned cars –

With employee owned cars, where the business reimburses the employees for using their cars for work related purposes, there are also positives and drawbacks to this option. Some of the important factors to consider here include:

  • The business owner might not have to reimburse the employee if it is only occasional driving, and short distances (this is a great benefit if driving is not a big part of the job, and can really help cut back on expenses for certain businesses).
  • There are different types of reimbursement methods (from mileage to use, there are different ways to reimburse them).
  • Business owners and the employees will get some kind of tax benefit. It is an expense for the company and a deduction for the employees.
  • If employees are willing, and it is a part of the job description, the business owner can decide on the best form of reimbursement (the cheapest for them), and can have their employees have to deal with the problems.

With this reimbursement option, employees are in charge of their own insurance, and damage to the vehicle (there might be certain liability for the business owner) when they are driving. A drawback is the lack of uniformity that fleet cars bring. Since each employee has their own personal car, they might greatly differ from one to the other, and customers might not trust certain vehicles without a company logo on it.

As far as expenses, there are different ways to reimburse employees. Mileage limits are usually the most chosen option. If the employee exceeds a number of miles driven for work purposes, they are reimbursed for use, plus the petro costs. As far as maintenance, the employee might get some kind of assistance, but unlike fleet cars, the employer is going to save on this front. The amount of use, and all the work related uses have to be documented by the employee, with dates, mileage driven, and the use of the vehicle, in order for the employee to be reimbursed.

Which choice is better? –

This truly depends on the type of business. If there is not much driving involved, and it is only minimal mileage being put on the vehicle every few weeks, it is definitely not worth leasing fleet cars. If employees are willing to drive, if the employer reimburses them for gas, this is a great cost saving for the employer.

On the other hand, if you are a well-known company, and if driving is at the center of operations, the fleet car lease option from an established company like Mitsubishi is possibly the better choice. It gives a uniform look to the company, you can put logos on the vehicles, and if you lease a certain number of vehicles, you might get different discounts in lease price, and possibly in the insurance costs.

Due to the fact that each business is different, and has different needs for cars in their operations, it is important to weigh the benefits and drawbacks of each of these options, to determine what the best choice is for you to make as a business owner.

Frank Funk is a business owner from Perth, Australia. He currently reimburses employees for using their own cars.

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