The Hidden Dangers of Vehicle Reimbursement

A continuous debate amongst organizations that require vehicles for business use is whether they should provide their employees with company vehicles, or offer reimbursement for the use of their personal vehicles.

At first glance, a reimbursement program may seem simpler and more cost effective from the company’s point of view. However, reimbursement programs, both mileage-based and vehicle allowances, contain several drawbacks that may not be readily evident. If your company is currently on, or is considering implementing a reimbursement program, here are 4 risks that you will want to consider.

In This Article

Decrease in Employee Morale
A Recruiting and Retention Advantage is Eliminated
No Control over Brand Image
Increased Liability Risks

Decrease in Employee Morale

A company provided vehicle can be a huge morale-booster for employees. The perk demonstrates that they’re trusted and valued members of the organization. Conversely, reimbursement programs can breed resentment towards both the company, and other employees. Employees may be unhappy that the company has placed the burden of vehicle management with them. Also, depending on the reimbursement program in place, some drivers may be overpaid while others underpaid, thus producing a sense of unfairness among colleagues.

A Recruiting and Retention Advantage is Eliminated

A company provided vehicle is one of the most sought after benefits by current and prospective employees. In fact, according to Mike Antich of Automotive Fleet, “Repeated industry surveys show prospective employees view a company vehicle as an equivalent benefit to health care coverage and pension benefits.” By providing a company vehicle, a massive recruiting and retention advantage is gained over competitors who merely offer reimbursement.

No Control over Brand Image

A company vehicle is part of your corporate image. If the company doesn’t provide the vehicle, it has no control over what the employee drives to a client’s location. Your employee pulling up to a customer’s building in a pickup truck covered in political bumper-stickers conveys one image; in a BMW 5-Series, a very different image. Neither may be the image you want to portray, but under a reimbursement program, that decision lays solely with the employee.

Increased Liability Risks

Often times, when employees utilize their own vehicle for business use, they fail to carry adequate insurance coverage with the company listed as an additional insured. Furthermore, drivers utilizing their own vehicles may postpone necessary repairs out of ignorance, greed, or financial necessity, which could create a huge liability for the company in the event of an accident. It has also been our experience that companies on a reimbursement program tend to be more lax when it comes to running Motor Vehicle Reports (MVR) on employees, thus missing out on the opportunity to spot potential problem drivers. Also, compared to personal vehicles, company provided vehicles tend to be newer, with the most recent advancements in accident mitigating technology included.

Be sure to check back in the following weeks as we will be taking a deeper dive into each one of these risks of reimbursement.