Vehicle Reimbursement Program Considerations
Fleet Operators are examining every aspect of their operations in the face of an uncertain economy. Vehicle reimbursement specialists CarData, share insights into how a VRP can reduce expenses.
Declining revenues and uncertain future business climates compel enterprises to examine business operations to cut and control costs. Companies operating a fleet of cars or light trucks can turn attention to their vehicle reimbursement policy as one area of opportunity for reducing expenses.
Vehicle Reimbursement Programs
Where does Vehicle Reimbursement fit in a corporate business mobility program?
The application to use a VRP (Vehicle Reimbursement Program) is with non-branded vehicles that employees also use for personal driving. This means that commercial vehicles and trucks that wear corporate logos and markings are not eligible. The opportunity is with sales, service, managerial, merchandising, inspectors and technical personnel who are allowed to drive the company car home in the evening and on weekends.
Benefits of a VRP
There are several options for moving from the classic company car program to a reimbursement program. While each option offers pros and cons that become clear when working through the details, higher-level considerations are useful guideposts for utilizing a VRP:
- Cost Savings
- Risk & Liability
- Employee Expectations
- Fixed Cost Savings: When a company owns or leases a vehicle, it pays for the employee to use it seven days a week; in essence, the company pays for 100% of the vehicle. For VRPs in which the employee provides the vehicle, the company reimburses for the five business days a week of use, or 71.4%. Because each company is different, it is not accurate to assume that there is precisely a 28.6% cost reduction, but it is safe to assume savings of between 25% to 30%.
- Variable Cost Savings: “You can’t press pause on the gas tank” is a maxim summing up the fact that there is no practical way to separate gas used when the car is ‘on the job’ or being driven for personal use. This highlights the issue with Fuel Cards and the opportunity for more cost savings.
One last point for cost savings is that reimbursement payments are non-taxable, so non-taxable to the company and non-taxable to the employees when compliant with Canada Revenue Agency guidelines.
RISK & LIABILITY
The inherent liability risk to the business is one of the greatest drawbacks of providing drivers with a company car. When the business owns or leases the vehicle, it also assumes responsibility for the vehicle asset, regardless of whether the employee is at the wheel or if an accident occurs during business or personal use. Million-dollar claims are often the trigger for a business to evaluate their company car program.
VRPs have come a long way over the years. Today a reimbursement solution can ensure that drivers are properly insured, track mileage through a custom application and provide defensible data for an audit. And to be clear, the employee is responsible for anything that happens with the vehicle they own.
Surveys show that employee attitudes toward Vehicle Reimbursement Programs are one-third pleased, one-third neutral and one-third not enthusiastic.
1/3 Pleased – drivers choose the type of vehicle they prefer, one that suits their needs aside from work, could be a minivan, a crossover, a pick-up or an electric. The other big plus is that drivers retain the equity in the vehicle at trade-in.
1/3 Neutral – these employees believe the company will treat them fairly, and they wish to get on with their job.
1/3 Not enthusiastic – these employees identify with the company car and the personal driving expenses paid for by the company.
VRPs have structured, policies and procedures to govern their operation, and to ensure the benefits are achieved.
- Company Policy – Controls the age of the vehicle, the number of doors and sometimes the price of the vehicle.
- Vehicle Profiles – Control the reimbursement payments; for example, a 5-passenger Crossover Vehicle Profile is the foundation of the reimbursement amounts, though the employee can choose their preferred personal vehicle, and they pay for any difference.
- Cost Control – Vehicle Profile selection determines the reimbursement payments – a Sub-Compact VP has lesser reimbursements than a Mid-Size Vehicle Profile.
- Mileage Control – Mileage apps accurately track business kilometres for precision variable reimbursement.
- Risk Control – ‘Eyes-on’ drivers’ insurance policies at every renewal, ensure in-force policies with the coverages required in the company reimbursement policy.
When business is booming, it is natural not to worry about making changes. When uncertain conditions exist, it becomes valuable to look for ways to gain more control.
Please see official Fleet Magazine release HERE.
About CarData Consultants CarData provides data-driven Vehicle Reimbursement Programs for the mobile workforce. CarData services save money, reduce risk, and look after the users. CarData programs are compliant with the CRA and the IRS for non-taxable reimbursements.