Some Corporate Managers feel an employee reimbursement program costs less than offering company-provided vehicles. However, we have strong reasons to think otherwise. In the first installment of this article (CLICK HERE FOR PART ONE), we looked at some of these reasons. In this article, we bring to the fore some more points.

 

Costs Unfairly Shifted to Employees

It is more expensive for employees to use their personal vehicles for business than it is for a business to offer company vehicles. As a volume vehicle buyer, a company can acquire vehicles at wholesale cost, while employees must pay retail. Second, a company can finance a vehicle at a cheaper cost than an employee. A company also has lower vehicle maintenance costs by participating in a national account program, while an employee typically pays retail.

Companies are eligible for discounted prices for initial vehicle cost, repair, parts, and service. Plus, on occasion, they can get out-of-warranty good-will adjustments. Also available are reduced rental car rates. As volume customers, they have direct access to manufacturers for assistance with parts expediting, and additional discounts.

An employee can’t possibly buy or lease a new car and operate it as inexpensively as a company.

No matter what cost category is examined, a company-provided program is less expensive than driver reimbursement. A well-run, company-provided fleet will generally reap the benefits of lower overall costs due to the economies of scale that larger volume drives. These include: lower acquisition costs, lower holding costs (lease or depreciation expense), lower maintenance expense (national account pricing, specially negotiated programs on tires, oil changes, etc.), lower fuel expense, and lower insurance costs.

 

Reimbursement Offers Less Control of Employee Safety

Under reimbursement, an employee can buy or lease a less safe vehicle, which exposes the driver and the company to a higher risk of serious injury in the case of an accident.

Many fleets tend to equip all vehicles with current safety features. If employees are providing their own vehicle, they may not be willing to do the same. Fleets can provide, or mandate, additional safety equipment, such as barriers in minivans, to protect the driver and passengers from in-vehicle flying objects in the event of a sudden stop or collision.

Some companies also affix “How Am I Driving” bumper stickers with a DESIGNATED number to call as part of their fleet safety program. It would be difficult to require these bumper stickers be placed on a personal vehicle.

 

Driver May Carry Inadequate Insurance

If a vehicle is not provided by the company, then the company must be certain that the driver has sufficient insurance to protect it from exposure should there be an accident while the driver is on company time. It is difficult to confirm a reimbursed driver’s compliance with a company’s insurance requirements. Some insurance companies require drivers who use their own vehicles for business to carry a certain naira level of insurance and it is an additional administrative expense to ensure compliance.

When liability insurance premiums are paid by the company, there are no surprises on coverage or payment. With driver reimbursement, the driver may not carry adequate liability insurance, which puts the company at increased risk.

 

Increased Temptation to Defraud the Company

Reimbursement opens the door for the padding of business mileages in order to increase allowances. Typically, drivers keep poor records of where they drove and for what reason, so companies often reimburse without actually knowing whether it was for business mileage. Also, some employees may attempt to get reimbursed for unauthorized expenses and there may be a deception of the true operating costs. It takes time and labor to monitor against these abuses.

 

Employee Gets a ‘Pay Cut’

The cost of fuel, insurance, personal property tax, registration fees, and maintenance of vehicles vary substantially. It is rare that a company reimburses mileage at a rate that fully compensates a driver for the actual cost of operating a vehicle. The driver ends up with a reduction in pay because he or she now has to make up the difference between the reimbursement amount and the actual cost of operating the vehicle.

Also, there are geographic inequities to a reimbursement program: One of the biggest problems with driver reimbursement is establishing an equitable rate for everyone due to geographical areas, territory size, and types of driving.

 

Loans to Cash-Strapped Employees for Vehicle Repairs

Will the reimbursement provided by a company to an employee driver be used for a vehicle or to make a college, mortgage, health, or home insurance payment? A very relevant question, you will agree.

Often, salespeople whose job requires their use of a vehicle are recruited straight out of college. At this young age, many employees have little or no credit history, often no cash for down payments, and little experience in buying or leasing cars.

Many fleet managers report that these younger employees often need the company to be a co-signer of a loan and lease. Other fleet managers report that sometimes employees run short of cash and have to ask the company for a loan or ‘IOU’ to repair their personal vehicle to continue working.

 

Many Employees Buy Least Expensive Vehicle

Often, drivers seek the lowest payments possible through longer terms because they think they can “make some extra money” by doing so.

If you allow employees to buy their own vehicles, some of them will buy the cheapest vehicle they can, so that they can try to make money from the company allowance. Also, drivers do not always replace vehicles on a timely basis.

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