If you still provide company vehicles, then you may want to limit the personal use of those vehicles. Bear in mind that for your employees, personal use of the vehicle is considered a taxable non-cash fringe benefit. In other words, there is a tax benefit for the employee if personal use is limited to occasional or "de minimis" personal use, such as stopping during a commute.
However, for many employees, only using the vehicle for work is a challenge. Many people may not have the space to park a second vehicle for personal use, for example.
Thus, it's more reasonable to have a policy that allows for some personal use, unless the vehicle is a marked delivery vehicle kept on the property or a motor pool vehicle that is made available, for example to somebody who needs to drive to a conference.
Here are some things to consider when setting a policy:
- Only assign vehicles to people who need them permanently. Delivery drivers obviously need a vehicle. Other people may only need a car occasionally, and it is better to give them access to a motor pool, with prior approval.
- Prohibit the use of cell phones and texting at all times when driving.
- Employees should not be allowed to let family drive company vehicles and many recommend, for liability reasons, not allowing anyone who is not an employee to be a passenger. Employees should be held responsible if a family member takes the car without permission and should be cautioned to keep the keys safe at all times.
- If the employee is driving the car for business purposes, then they are covered by your liability policy. Personal use, however, may not be, and depending on how the policies are written, there might be a situation where an accident is not actually covered at all. Employees should be required to get insurance so that they are covered while using the vehicle for personal use, both to protect them from liability and to protect you from having to cover damage to the vehicle. Disallowing personal use can also lower your premiums.
- The IRS does not consider employees using a vehicle to commute to be a legitimate business use.
- It's vital to monitor personal use of vehicles so as to enforce any policies and ensure that employees are paying, for example, for the gas they use if they use the company car to run a weekend errand. This alone may be enough to discourage vans and other commercial type vehicles from being used for personal errands, as they generally use more fuel and cost more to run than the employee's own car. Not monitoring personal use can also increase your risk of being audited.
- Have policies in place that promote safe driving. This might include offering advanced training, having a very solid policy against driving while impaired, and giving out certificates or small prizes to drivers who avoid accidents. This goes for any time the vehicle is being used.
- Remember that if somebody gets into an accident, or goes to a political rally, in a vehicle with your logo on it that could reflect on you. Limiting personal use is a good way to avoid having your logo be photographed somewhere you might find embarrassing.
In general, you should not allow unchecked personal use of company cars and other vehicles. Allowing some minimal use will keep employees happy, especially if they have to park the vehicle at home.
However, both you and they should be aware of the tax implications and you need to carefully monitor personal use. Many employees will find that if their use of a company vehicle is monitored they will prefer to use their own car for personal errands, solving the problem.
To find out more about good company vehicle policies and how we can help with fleet management, contact Wilmar, Inc. today.
