Depending on the nature of your business, you may find it necessary to have a company car to help you make deliveries, meet clients, or execute other business operations.
Driving Your Company Car for Personal Use
Whether you are an employee or own the company, you may want to use the company vehicle to commute to and from work or run some other personal errands.
While doing this may seem like a good thing, using a company car for personal use can potentially harm your business in various ways, and it is best avoided.
Three Reasons Why You Should Avoid Using a Company Car for Personal Use
You May Be Required to Pay for Damages if You Have an Accident.
In most cases, company vehicles are insured under the employer’s company name. In other words, the insurance company will pay for damages caused by a company employee in a covered accident or any crash that happens when an employee is engaging in a company-related activity.
However, if an accident in a company vehicle occurs when the employee is acting outside their scope of employment, the worker will be held liable. That means they may also be required to pay back the amount paid out by the insurance company as damages.
Therefore, if you intend to use or let your employee use a company car for running some errands that are not work-related, you may want to consider buying a policy that allows for such use.
Using a Company Car Is Taxable by the IRS.
Companies enjoy significant tax deductions when buying a business vehicle. However, if you as an employee have been assigned a company car that you use for personal business, the IRS will consider it as a taxable non cash fringe benefit.
In simple terms, you will have part of your pay deducted as tax which translates into less take-home pay.
Some of the activities considered by the IRS as fringe benefits include commuting to and from work, running personal errands, and driving for leisure.
However, if you are self-employed and your home acts as a principal place of business, commuting between home and work will be considered work-related. Therefore, you may still be eligible for tax deduction benefits.
Potential Reputational Damage
Company cars represent the company’s brand, and whatever is done with the car can be interpreted as the company’s culture.
Because driving always involves risk, driving your company car for personal use exposes it to a greater risk of accidents that can reflect poorly on your company’s reputation, especially where the accidents are severe and involve gross negligence.
Additionally, using your car to attend events such as political or activism rallies could be viewed as your company’s endorsement of a political party’s or activists’ views.
This perception of company endorsement of political or activism views can be offensive to some existing and potential customers and could end up hurting your business.
Alternatives to Company Cars.
While having a company car and limiting its use may make sense for some businesses, that may not be the case for all. As such, some companies will look for alternative ways to give employees access to cars while still reducing the high expense and risks of using the vehicle for personal activities.
Paying a standard mileage rate for the use of a personal car is one of the common alternatives to company cars. In this case, organizations strike a deal with their employees, allowing them to use personal vehicles for business purposes and then provide them with mileage reimbursements.
Besides saving the company the initial cost of buying a company car, this approach helps reduce liability. The most significant challenge to this approach would be reporting accurate mileage reports, which can be solved by investing in appropriate mileage reporting tools.
Another common alternative to company vehicles is car allowance. With this option, the company pays the employee a monthly stipend to cater for all business-related travel expenses, whether they use a personal vehicle or other public means.
The best thing about this arrangement is that there is no need to distinguish between business or personal use of a car. The employer just pays the car allowance, the employee fulfills all the business travel needs, and that’s it.
Using a company vehicle for business uses either for you or your employees can pose a significant risk to your business.
The good news is that there are many other ways employees can be given access to cars and eliminate the risks and costs of using a company car to attend to personal matters.
If you have to allow your employees to use a company, make sure that they understand who is responsible in case of an auto crash, the tax implications, and possible reputational damage.