How to Control Personal Use of a Company Vehicle
Does your business know how to control personal use of a company vehicle, and why it is so important to do so? Here are some answers to both questions.
Personal Use of a Company Vehicle: Why It Matters
Let’s start with why this issue is important. In Canada, the US, and the UK, for example, when companies let employees use company vehicles for personal use, that use is considered a benefit of employment. That means it must be essentially treated as a taxable fringe benefit to the employee, based on the value of the use of the vehicle to the employee. It also means the employer must determine that value, based on multiple factors, such as the age of the vehicle and whether it is owned or leased.
In addition, numerous insurance and liability concerns come into play whenever an employee takes the wheel of a company vehicle for personal use. These concerns will vary depending on location and whether the vehicle is owned leased by the company, among other factors. Whatever the specifics, these issues mean that a formal, clear, well-documented policy for personal use of a company vehicle is a business necessity.
Personal Use of a Company Vehicle: What It Means
Most people probably have at least a vague idea of what the terms “personal use” and “company vehicle” mean. It turns out that regulators of vehicle operation and insurance have specific, detailed definitions of both terms.
In Canada, for example, “personal driving” that must be treated as a taxable benefit includes the following circumstances:
- Vacation trips
- Driving to conduct personal activities
- Travel between home and a regular place of employment, other than a point of call
- Travel between home and a regular place of employment even if you insist the employee drive the vehicle home, such as when they are on call
Canada defines “regular place of employment” as “any location where your employee regularly reports for work or performs the duties of employment.” Examples include the following:
- The office where your employee reports daily
- Several store locations that a manager visits monthly
- A client’s premises when an employee reports there daily for a 6-month project
- A client’s premises if the employee has to attend biweekly meetings there
There are two exceptions for which employee travel between home and a regular place of employment need not be treated as a taxable benefit in Canada. One is if your company needs to transport employees from pickup points to an employment location when public and private vehicles are neither allowed nor practical at the location because of security or other reasons. The other is if your company needs to provide transportation to any employee who works at a special work site or a remote location.
Beyond these definitions and exemptions, to treat personal use of a company vehicle as taxable employee income, that use must be assigned a fair market value. Rules governing how that value is calculated and assessed vary by country, and sometimes by vehicle type and whether and when it was purchased or leased. There are widely used standard formulas for calculating that fair market value. There are also exemptions, and different formulas for those.
There are more considerations as well. And similar but sometimes different rules, definitions, and exemptions exist in the US, the UK, and elsewhere. Your mileage may vary.
Personal Use of a Company Vehicle: What You Should Do
Get all of your vehicles tracked. Your business cannot effectively deploy and manage a consistent and correct policy for personal use of a company vehicle without complete, accurate, timely information about every company vehicle. If all of your vehicles aren’t already equipped with GPS tracking hardware and software, they should be.
Get a formal policy in place. Work with your accounting and legal advisors to ensure that your policy meets or exceeds the requirements wherever your business has employees and uses company vehicles. Then, make sure every employee is aware of and understands the policy. Also ensure the policy gets reviewed at least annually and updated or revised as changing business conditions or local regulations dictate.
Document everything. Your policy for personal use of a company vehicle should be captured and disseminated everywhere your business does business. In addition your business needs a repository to capture, store, and update information about vehicle costs and values, personal use histories, and other relevant information. Such a repository could be invaluable, especially should questions of compliance or accurate wage, benefit, and taxation reporting arise.
Don’t go it alone. It is highly unlikely that your business focuses on fleet management, fleet tracking, or the details of personal use of a company vehicle. If these issues are beyond the scope of currently available skills at your business, identify and work with a partner with relevant expertise and experience.
Personal use of a company vehicle is a benefit employees appreciate. It can improve employee satisfaction, and even help raise workplace morale. But it can only deliver benefits to your business and your employees if it’s done right, and made seamless to the workers and the business. Fortunately, help is readily available. Your business just has to commit to managing the process correctly and consistently.
Want to know how RAM Tracking helps more than 9,500 companies manage their fleets and issues such as personal use of a company vehicle correctly and painlessly? Contact us today.