Whether you are an employee who’s interested in whether it’s wise to take advantage of a company car allowance deal, or an employer that’s considering setting one up for your team, insurance could be a sticking point.
With varied costs and the legal requirement to have insurance if you own or have use of a vehicle, this seems like a significant outlay. But to what extent is it necessary to pay for insurance under a company car allowance package?
Insurance can be expensive, particularly in certain states
One of the unavoidable facts about auto insurance is that some people have to pay more than others simply because of where they live.
A good example of this is the state of Florida, which has higher average insurance premiums to account for the occasional extreme weather that causes chaos there.
Modern comparison tools do help motorists make savings, whether they use their vehicle for business or personal purposes.
It’s worth bearing in mind that costs of cover can rise if business use is included, and drivers have to tell insurers if they will be driving as part of their job, or else their policy might be invalidated.
Rules differ across the country
Another important point to take onboard is that not only will insurance costs vary from place to place, but the regulations and requirements to which employers must adhere are also wildly different.
In some states there is no mandatory need for employers to include insurance costs when calculating company car allowance payments. In others, like California, an allowance for the use of a personal vehicle for business purposes must be all-encompassing, which includes insurance as well as maintenance and tax.
Reading up on the rules which are in place in your area is sensible for employees and employers alike, so that you know where you stand.
Attracting and retaining talent matters
Even in the case that a business is not bound to cover insurance costs for employees by the authorities of the region, that doesn’t mean to say that they shouldn’t.
It’s all about working out how much it costs to recruit skilled team members, and to keep them satisfied and happy in their roles over time. While you might make a small saving by choosing not to pay for insurance costs under an allowance policy, this could be a costly mistake in the long run if you can’t attract or retain your best human assets.
Keeping employees safe is key
You should also think about how a company car allowance that includes insurance costs will influence the decision-making and driving habits of the employees that use it.
If workers are forced to pay a higher premium price if they are using their vehicle for business purposes, but aren’t being reimbursed, then they might instead pick a more basic package. Then if something goes wrong, they might not have adequate cover to get their car back on the road, which will of course hurt the business’ bottom line.
Likewise a lack of insurance payments could disincentivize employees from using personal vehicles for work purposes, which will be problematic from a productivity perspective.
In short, there are lots of angles from which it makes sense to implement insurance costs within a company car allowance scheme, which is why this is such a common feature nationwide, and internationally.
Allowance arrangements can be flexible
Business owners may be worried about the costs that come with a company car allowance initiative, but there are options here as well.
For total flexibility, providing a per-mile reimbursement agreement which means you only need to pay for the distance traveled by the employee for business purposes is arguably best.
For complete coverage, a flat allowance paid each month may be more savvy, depending on your situation.
Whatever the case, make sure to calculate costs carefully in order to come up with an allowance arrangement which keeps all parties content.