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Effective transportation for your employees on the road is the lifeblood of countless businesses, whether they're out visiting customers, patients or potential partners. But managing that transportation has always been a complex — and often costly — undertaking.
Historically, company-owned vehicles have been the go-to solution. With a company fleet, businesses could control vehicle specifications, ensure proper insurance compliance and maintain consistent visual branding.
But now, with increasing rates of traffic accidents, company car programs carry greater risks than ever. And, as new generations with different expectations enter the workforce, company cars are fast becoming less of an incentive, and more a holdover of yesteryears.
Of course, for many employees — such as delivery drivers — providing company vehicles is non-negotiable. But, for many other drivers in company cars, the risks now often outweigh the rewards.
Many businesses have updated their vehicle programs to adapt to this change. Supported by sophisticated technologies, they’re shifting away from the traditional fleet management model toward more dynamic, flexible alternatives — such as car allowances and mileage reimbursement.
Here’s why.
It’s estimated that 40% of all traffic accidents are work-related — and the overall rate of accidents is increasing.
The number of traffic collisions was higher in 2022 than in any year previous — despite overall traffic still being lower than before the pandemic. In the first quarter of 2022, fatalities from traffic collisions hit a 20-year high.
This risk is especially heightened for drivers of company cars. Research shows that the annual accident rate for company-owned vehicles is 20%.
The monetary cost of these accidents is typically higher for company-owned cars than those that are personally-owned. The average cost of an on-the-job crash with property damage only is estimated at $5,483, compared to $4,700 across the board. The average cost with a non-fatal injury is $75,176.
There are many possible reasons for this difference. Employees’ lack of comfort and experience with driving company-owned cars may result in more crashes (and more damage). And, after a crash, the perception that businesses have “deeper pockets” and a greater willingness to settle may increase the likelihood of more aggressive claims.
Higher accident rates in company cars are disastrous in terms of not just direct costs, but also indirect costs like reputational risk, productivity and the health & safety of your employees. Research from the Network of Employers for Traffic Safety indicates that, in 2018, there were 201,000 crashes that led to at least one lost work day.
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All of this heightened risk is reflected in more expensive insurance for company cars and commercial fleets. Premiums have risen consistently, well ahead of inflation.
Over the last decade, commercial auto insurance has risen by almost 50%.
A report from the American Transportation Research Institute found that, between 2018 and 2020, insurance premiums for very large fleets rose by 78%.
For large fleets, this figure was 43%. For medium and small fleets, it was 28% and 22% respectively.
In nearly 20% of cases, this rise was despite no increase in coverage.
When an employee crashes a company-owned car, the employer is liable, even if the car is being driven outside of work hours for personal reasons.
This concept is known as “24-hour liability”, and it’s one of the biggest risks created by company car programs — and a significant contributor to the high premiums of commercial auto insurance.
It’s a risk that’s resolved by having employees drive their own vehicles for work and carry adequate insurance. Then the liability falls primarily on the employee’s auto insurance — even when that driving is done for work purposes.
Instead of expensive, high-risk fleet insurance, companies that run mileage reimbursement or car allowance programs can opt for “non-owned auto coverage”. Under these policies, the company is only liable for damages that exceed the limits of the employee’s personal auto insurance — significantly limiting the liability and costs to the employer compared to a company car program.
The financial and legal risks posed by running a company car program create significant administrative and legal burdens.
And it comes on top of all the other administrative burdens associated with company car programs; like maintenance, insurance claims, assessing employee driving histories, fueling, and meeting the IRS’s often highly complex reporting requirements — all of which require thousands of working hours. A 2020 survey found that 40% of fleet managers spent more than half their time on administrative tasks.
This admin time creates an opportunity cost. Time that fleet managers could spend driving real business impact is instead spent on menial administrative tasks.
Many businesses are moving away from company car programs specifically because of this opportunity cost. Done right, many of the alternatives to company cars are lighter on admin, freeing up managers to work on higher-impact tasks.
[.quote-wrap][.quote-top][.quote-top]It’s probably saved me 10 or 15 hours a month. Seriously, it's about a half an hour now vs. before, I've got to worry about maintenance, breakdowns, tires, accidents, staying on employees to keep the company cars clean. For me, that's a pretty substantial time savings. As a manager, every minute counts, so to shed that amount of time has been huge.[.author-attribute][.is-hargest][.is-hargest][.author-facts][.author-facts][.author-bold]Todd Hargest, [.author-bold][.author-pos]Director of Safety and Transportation for Virginia Eagle Distributing[.author-pos][.author-attribute][.quote-bottom][.quote-bottom][.quote-wrap]
Recent research shows that company cars are a much less compelling benefit than they used to be.
In its 2022 Employee Benefits report, the SHRM found that only 12% of employers ranked “transportation benefits” as an important perk for their employees.
By contrast, 70% ranked “flexible work benefits” as important — a steep increase from the 49% who did so in 2019.
In other words, employees want to spend less time commuting — an especially salient point if your employees have to drive to the company to pick up their vehicle before starting on their day. Instead, they want flexibility in their benefits and work life, and that extends to flexibility in the type of car they drive too.
Personal cars are also more accessible. Rates of car ownership are gradually increasing year-on-year. Gone are the days when the first car a person gets is their company car.
Because of these shifts, offering a company fleet is much less likely to be an effective way to attract and retain talent.
Despite the gloomy outlook for company car policies, the changing nature of work — and, in some ways, the increasing costs related to doing business — represent huge potential for adaptable organizations.
Instead of making a huge investment into inflexible company car programs, more and more companies are instead choosing to reimburse employees for driving their own vehicles for work.
There are a number of ways to help cover employee costs for driving their personal vehicle, from basic car allowances (regardless of miles driven) to mileage reimbursement.
Mileage reimbursement programs especially can be hugely beneficial for businesses. These programs are IRS-compliant and avoid tax waste, in addition to eliminating the risks of 24-hour liability and the increased likelihood of claims against company-owned cars.
(Plus, with the sky-high costs of new vehicles, the market for used fleet vehicles is more competitive. Selling your fleet now could allow you to recoup a significant chunk of your initial outlay.)
Of course, there’s a lot to consider when making the switch, like the need to verify your employees’ insurance and track mileage for reimbursement.
That's where partnering with a flexible, easy-to-use mileage reimbursement platform can help you minimize the burden on your employees, ensure accurate mileage reporting and easily account for all those additional considerations.
[.blue-wrap][.list-head]Case study[.list-head][.list-subheading]Virginia Eagle Distributing had about 2% of their fleet getting totalled every year, creating significant risk and headaches[.list-subheading][.list-div][.list-div][.c-row-flex]After switching from a company car program to personal vehicle reimbursement, the Director of Safety and Transportation for Virginia Eagle Distributing saved more than 10 hours per month on administration.[.c-row-flex][.c-row-flex]And the company’s 100+ team of sales reps have a quick, easy-to-use mileage tracking platform that made the transition easy.[.c-row-flex][.c-row-flex]Read how they did it >[.c-row-flex][.blue-wrap]
More and more companies are deciding company fleets are no longer worth the risk for job roles that don’t require it, like sales reps, district managers and merchandisers. For them, reimbursing employees for miles driven in their own vehicles can be a flexible, dynamic way to reduce liabilities and costs.
And, while shifting away from commercial fleets isn’t trivial, finding a flexible, easy-to-use reimbursement solution can make the process much smoother.
If you’re ready to get started, learn more about disposing of your fleet, or get started with Everlance today.
We help people save time and money. At Everlance, we're on a mission to empower mobile workers and businesses. That sometimes leads us to generalize tax information. Everlance team members are not certified tax professionals. If you need help with your specific tax situation, please reach out to your tax advisor.
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