Providing Company Cars to Employees: Pros and Cons
Providing company cars to employees has several benefits for many companies, especially those that have plenty of employees on regular business travels. On the other hand, it can also be costly to buy and maintain company vehicles.
If you’re a business owner who’s considering the purchase of company cars for your staff, it is important to weigh the benefits and drawbacks carefully to ensure that you’re making the right decision.
Here are several pros and cons of providing company cars to employees to help you.
If many of your employees travel around or outside town on a regular basis, awarding them with a company car may be cost-efficient in the long run than providing them with travel allowance or having to reimburse them for mileage.
Depending on the size and revenue of your company, you can buy a single company car and have it used by those who need to transact business outside your office or you can buy an entire fleet that allows all your important people to drive their own company cars for business use.
Lower Purchase and Financing Costs
Many car manufacturers and dealerships also provide attractive discounts for fleet purchase, as well as after-sales service packages. These corporate car packages can also include complimentary roadside assistance, registration fees, warranty, servicing, and premium accessories.
You also don’t need to buy your company vehicle in full—You can take out a chattel mortgage to finance the purchase. This will help you afford one car or a fleet of vehicles without spending too much of your business money too fast. Additionally, a chattel mortgage generally has a lower interest rate than other car financing options because the car is used as security for the loan.
You can claim a GST deduction on your business vehicle. This can also be claimed in your first BAS statement after the purchase of the car, instead of over the term of the loan.
The GST deduction for company cars includes 100% of the annual running costs, vehicle repair cost, and interest cost. You can also write off depreciation as a financial loss. These deductions become more significant as you buy more company cars or add a new vehicle to your fleet, significantly offsetting the cost of company vehicle ownership.
Increased Productivity and Profitability
Company vehicles maintain the smooth operation of your business and help your employees become more efficient and productive in their tasks. With an available company car to use, your employees arrive at their business destinations fast, which is especially helpful if your company’s office is located in an out-of-the-way area that’s far from public transportation. Those staff who are allowed to take their company vehicles at home can also travel to and from your office easily.
The faster your employees arrive at their business meetings or events or to your office to work, the more productive they become. The more productive your employees are, the more your business becomes profitable.
Improved Employee Retention
Many employees, especially those who do not have their own vehicles, like the idea of being assigned their own company car. Aside from the status it brings, they also won't have to struggle with public commute when doing business errands around town.
Meanwhile, those who own cars won't need to take their personal vehicles for business purposes and sacrifice the wear and tear that the extra mileage places on their cars in the name of work.
Most of the time, company cars are also better equipped and comfortable than personal vehicles.
The perk of having to drive a modern car around town attracts many talented individuals to join your company, as well as convinces your staff to stay for many years.
You can install high-quality GPS tracking devices in your company cars to monitor your employees's trips. This is especially beneficial if you're in the trucking and logistics business. While your staff are free to drive around town in one of your company vehicles, you can track their location in real time Thus, you'll have a better idea of their activities and movements for the entire workday.
If your business involves the delivery of products or home service to your customers, you can also provide better customer service because you can easily estimate the arrival of your staff to your customer's location based on your vehicles' exact location.
Moreover, if in the event that your cars get stolen, you'll also have a better chance of tracking and retrieving them.
The cost of buying company cars can also quickly add up, especially if you need multiple cars for a large workforce.
Also, if you office is located in the central business district with plenty of public transportation to drive around town or if most of your employees drive their own vehicles to work and are okay with it, you might not need to buy many company cars for their use.
Maintenance and Repair Expenses
While you can save more on travel allowance by letting your employees drive company cars, you may need to pay for the car’s maintenance and repairs, as well as for their auto insurance and gas for the vehicle. This is especially true if you are purchasing an entire fleet, which requires a significant amount for insurance and maintenance.
Also, company cars that are driven frequently throughout the year require regular maintenance and servicing and occasional repair.
Over time, you would also need to replace your old, fuel inefficient, and repair-prone cars with modern models, which is an additional expense for your business.
Added Tax for Employees
Employees who are assigned a company car for business purposes may need to pay taxes based on the total value of the car and its emissions. This is an added expense, especially for those who already have their own vehicles.
While purchasing at least one company car for your staff to use offers many benefits, there are a few downsides. Each business situation is unique; Most times, providing your staff with company vehicles is ideal for your business growth, at other times it can put a strain on your profit. Before deciding to buy one or take out a chattel mortgage to finance the purchase, spend enough time researching the options and estimating how much you can afford in repayment.