Roughly 71% of organizations have company cars, but only 8.2% allow employees to drive these vehicles. This may be due to business owners disregarding employees’ need for a company vehicle, or it may be because their workers truly have no use for one. However, if your business is one of the few that requires a company car, there are a few things you must do before you can begin distributing vehicles.
Find a Car
Of course, you need a car before you begin drafting rules and regulations. If you don’t already have a company car, you’ll obviously have to find and purchase one. A small business may not have the funds to buy a new car, so you may have to obtain a used one. As long as it is in good shape, it will do just fine. Choosing a vehicle may seem like a daunting task, but you don’t need to be an expert to find a dependable one in good condition.
As you begin your search, identify which makes and models are generally the most reliable. Read all the information the dealer provides if you’re seriously considering a certain vehicle. This will help you determine if your purchase comes with a warranty or the dealer is selling the car as-is. Furthermore, thoroughly inspect the interior and exterior of each prospective vehicle. Check the mileage, and test the functionality of the AC, lights, trunk, and other components. Be sure to take the car for a test drive to see how it runs.
It’s also wise to take a peek under the hood and inspect it for damage. Rust, cracks, dents, and missing parts aren’t a good sign and may indicate serious safety hazards. Examine the battery in particular—as these can be quite expensive to replace—and check for corrosion or a low charge. This may take a trained eye, so if you aren’t confident in your car knowledge, ask a trusted friend to inspect the vehicles with you so you know for sure you’re purchasing a good one.
Decide Who’s Eligible
Once you purchase a reliable company car, you must then determine who is eligible to drive it. Ultimately, this decision and how you choose who is qualified is up to you. However, it’s smart to assign company cars to those who travel for work regularly. Whether they’re meeting with customers, transporting materials or driving to and from projects, employees can benefit greatly from a company car.
Additionally, you’ll want to weed out those who can’t or shouldn’t drive a company vehicle. For instance, you might require all persons driving company cars to have a clean driving record for a certain number of years. This means no past incidents of drunk driving, accidents, or arrests on drug charges. Of course, all drivers must have a valid driver’s license.
Make the Rules
Once you purchase a car and have determined who will be driving it, you must make a list of rules and obligations for the driver to follow. Here are some rules you might include:
- No smoking: If you don’t want the car to smell like burning cigarettes, ban your employees from smoking in the vehicle. This is especially important if you plan on reselling the car at some point, as most people don’t like the smell of smoke.
- No food: You might also prohibit drivers from eating inside the vehicle. This rule is more difficult to enforce, but it will help keep the interior clean and free of spills and stains.
- Keep it clean: If you decide food and beverages are OK to have in the vehicle, make it a rule that the employee must keep the interior clean. If they don’t, they’ll have to pay for damage or stain removal.
- Schedule regular maintenance: Additionally, it’s a good idea to require employees to schedule regular maintenance appointments. This will ensure the car runs for many years and doesn’t incur major unexpected costs.
- No lending or leasing: Any insurance you have on the car won’t cover drivers who aren’t employed by your company, so prohibiting lending or leasing it is important. Moreover, the employee shouldn’t be using a company car for personal profit.
- No unsafe driving: This rule prohibits employees from driving under the influence of drugs or alcohol. It may also include banning drivers from texting or talking on a cellphone while the car is in motion.
Report Personal Use
The IRS requires companies to report personal use of company vehicles when tax season rolls around. Personal use includes commuting to and from work, vacation and weekend use, running errands, and use by a family member such as a spouse. There are four options for reporting personal use—general valuation, commuting valuation, cents-per-mile method or annual lease method. Depending on your company’s policies and practices, one of these options may work better than another.
The general valuation option allows you to decide the value of personal use. This number would be similar to how much the employee would be paying to lease the same vehicle. However, you may report a more specific and accurate value to the IRS by figuring the annual lease value based on the IRS table. Multiply that by the percentage of personal miles to determine the value.
By contrast, you could use the cents-per-mile valuation by simply multiplying the number of miles the employee drives for personal reasons by the standard mileage rate. If you don’t allow workers to use the vehicle this way, simply use the commuting valuation method, which entails multiplying the number of one-way trips by $1.50
Keep a Record
Allowing your employees to use a company vehicle requires extra steps, procedures and decisions, and keeping a mileage and activity record is another one of these responsibilities. This means that whoever is driving the car must maintain a comprehensive written record of when they use the vehicle for personal and business use. Be sure to choose reliable drivers who can do this and follow all the rules you have in place. The future of your business depends on it.
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