Monitor Personal Use of Company Cars: Employee Guidelines for Using Company Car & Mileage Allowance Policy

Businesses that have company cars can sometimes incur a high amount of unnecessary expense. Here's how to limit that.

Businesses that provide company cars or other vehicles for use by employees often incur an alarming amount of unnecessary expense. It’s not unusual to find that 20 to 30 percent of the cost of providing these vehicles reflects non-business use or outright waste.

Even if you lease the vehicle, when you factor in such operating expenses as gasoline, maintenance, repairs and insurance, it’s going to cost your company at least $5,000 to $10,000 per year to keep each one on the road. If even only 10 percent of these costs are unnecessary, a significant amount of company profit is escaping down the rathole. In the best of times, a waste factor of $500 to $1,000 a year per vehicle should be considered a misdemeanor. In a bad year, to allow such losses to continue unchecked is a capital offense.

At a minimum, employees should be expected to maintain a daily travel log listing all mileage driven, destinations, and the reason for each trip. Such procedures will not only help you reduce waste, but may also enable you to uncover more serious problems within your organization. One business that tightened vehicle-use record keeping discovered that one of its drivers was systematically siphoning gasoline from the company truck he drove home every night. We estimate that during the past two years the business lost at least $30 a week from this gas thief. Certainly, that $3,000 could have been put to better use.

A policy of limiting company vehicles to business use could do more than reduce your operating costs, however. It could also protect your business from nightmare liability. Suppose an employee driving home in a company car stopped off for a few drinks and then caused an accident. Imagine the exposure your company would face.

It may not be practical to flatly prohibit all personal use of business vehicles. But at a minimum, employees who put company vehicles to personal use should be asked to absorb a proportion of the costs. If you permit employees to drive company cars home, personal use should be monitored and the driver should be charged for mileage not attributable to business.

Even if you impose only a token charge for non-business mileage, at least you’re serving notice to your employees that you’re concerned about excessive or unnecessary use of company cars.

In some ways, technological advancement is underscoring the need to keep tight control over automobile costs. Last year a business associate of mine installed cellular telephones in each company car used by his outside sales force. No doubt the car phones added to the productivity of the sales reps. But they also created new opportunities for waste and abuse of company funds.

We analyzed the client’s telephone use and were able to trace at least one-third of the company’s total charges to the cellular phones. We found that the car phones were being used to order pizzas, call 900 numbers, and make non-business long- distance calls. The owner was astonished.

To put an end to this waste, the company adopted a new system under which all calls made on these car phones had to be logged in. Actually, such logs are required by IRS to verify the deductibility of these calls. Under the procedures, employees are still allowed to make personal calls on company car phones, but the cost of those calls is deducted from their paychecks.

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