When it comes to employee benefits, a company car or an allowance are both attractive options. Deciding which one to choose depends on many factors – such as the company policy and individual circumstances – making the decision a tricky one.
Most importantly, a company car or allowance is a privilege and something of a status symbol. According to motor company Lease Car, 47% of private individuals said having a company car made them feel more ‘professional’, especially when it came to meeting clients.
So, if the company is looking for employees to represent them in a professional manner, it might be worth considering offering a company car or allowance.
When deciding which one to go for, it’s important to consider how much the costs would be in the long-term. Employers need to think about whether they can afford to provide a car and how much of the cost they will cover. Do they want to provide a brand-new car every three or four years, or just pay for the maintenance and fuel?
It’s also important to acknowledge that some employees may be more willing to take a company car than others. According to Eurotax Glass, many people are reluctant to accept a company car because they are afraid of the ‘grey fleet’ – the use of old or high-mileage cars that may not meet company standards.
Ultimately, an allowance is less administratively burdensome and it’s often simpler to organize. Companies can offer a flat rate allowance, or they can provide an allowance on a case-by-case basis and calculate contributions to the cost of fuel and maintenance.
Employers should also think about how this can affect their tax obligations. If a fleet of company cars is provided, the company will incur tax, but if a car allowance is provided, then the employee is liable for the tax.
Similarly, if any of the vehicles are used for private business then the company may incur tax. An allowance, however, does not incur any additional taxes and it gives the employee more freedom to choose the type of car they prefer.
Company Car
There are several advantages to providing a company car instead of an allowance. The biggest advantage is that employees usually have full access to the facilities and services offered by the car supplier which can help in terms of maintenance and repairs. Additionally, a company car is easier to manage and can be tracked at any time.
Also, certain tax reliefs may be available to the employer and this could help offset some of the costs. Furthermore, depending on the supplier, the company may be able to negotiate discounted rates on purchases.
The biggest advantage of a company car, however, is the increased respect from customers or clients. It indicates that the company is willing to invest in their employee’s professional development and it serves as a symbol of trust, which can have a positive effect on the company’s reputation.
However, the downside of a company car is the cost. Fixed costs include purchasing the cars, insurance, servicing, repairs and maintenance, fuel, etc. In addition, the company may have to pay higher taxes if the car is used for more than just business trips.
Car Allowance
A car allowance system is an attractive option for employers who don’t want to provide a company car. It is less administratively burdensome and can be more affordable than buying a new car. Additionally, it gives employees more freedom to choose the type of car they prefer.
Unlike company cars, car allowances do not incur additional taxes and the employee is liable for any taxes due. This is attractive for employers as it requires fewer administration tasks and less paperwork. Additionally, the employee will be able to choose fuel-efficient cars, which can help save money in the long run.
In terms of employee loyalty, a car allowance can be an incentive and can make employees feel more valued. It can also be used to attract the right talent to the company and can be used as a reward for good performance.
However, the main downside of a car allowance is that it can be difficult to control how the money is spent. Employees are not required to keep receipts or log their trips and as a result, the company may not be able to track the cost of their travel.
Advantages & Disadvantages
When considering whether to provide a company car or allowance, it’s important to weigh up the advantages and disadvantages of both. A company car is a powerful symbol of the company’s commitment to its employee’s wellbeing, but it comes at a cost and the company may be liable for additional taxes.
A car allowance is an attractive option as it requires less paperwork, but it can be difficult to keep track of how the money is being used. Ultimately, it is up to the employer to decide which option suits their company best.
Considerations for Choosing
When making the decision of whether to offer a company car or allowance, the employer should take into account several considerations. Firstly, they need to ensure that they are offering a fair and competitive package to their employees. It should also be in line with their corporate policy and individual circumstances.
The employer should also consider their budget and the long-term costs involved. In some cases, it may be more cost-effective to opt for a car allowance as this involves less administration and less paperwork. The employer should also think about different incentives they can offer to employees in order to retain their loyalty.
Overall Benefits
Overall, a company car or allowance can be a great incentive for employees and it can be used to show the company’s commitment to its employees. It can also help to attract the right talent to the company and can be used as a reward for good performance. It’s important that the employer takes into account all the relevant factors before making a decision.
