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Fleet Intuition

Best practice: Travel allowance

Posted by Sudesh Pillay on 2019/02/13 11:00 AM
Sudesh Pillay

travel allowance

Here are the best and most efficient ways to work with travel allowances for your company fleet.

As a rule of thumb, providing company cars instead of a travel allowance is more efficient for most companies in the long run. There are, however, some exceptions and in order to ensure your travel allowance system delivers the best possible results, at the minimum cost to your business, we’ve compiled some guidelines for those looking to bolster their travel allowance policy.

1. Crunch the numbers

With a travel allowance the employee has 100% ownership of the vehicle, and the company is responsible for reimbursing all costs related to business travel. In most cases employees will already own a vehicle when they are employed by a company, which means the company has no control over what type of vehicle the employee drives.

The mistake many companies make with a travel allowance is allocating a fixed amount to all employees without considering varying fuel, maintenance, monthly mileage, depreciation and insurance costs for different types of vehicles. This quickly leads to employees suffering the consequences if the allowance is not sufficient, and then leads to many employees not being able to give 100% to their work. For example: some employees may have to reduce their work travel if they can’t afford fuel, which in turn leads to the company losing out on potential business or poor customer service, depending on what the business travel is for.

The other numbers to keep in mind is SARS – with the new travel allowance claim system it can quickly become a minefield of paperwork and complicated tax returns for the employee as well as the company. Fleet managers need to keep this in mind when drawing up the company travel allowance policy, and offer employees assistance when it comes to filing tax returns. A little bit of help can avoid plenty of SARS headaches down the road.

2. Insurance assistance

A travel allowance should be structured to cover the employee’s insurance costs, but many employees might decide to forego insurance if the allowance isn’t sufficient and they can’t afford it. This puts the employee as well as the company at risk. It’s important to remember that employees always represent your business, even if they’re driving their own vehicle. So, any incident on company time, and the resulting fallout, will reflect on your business.

Companies need to ensure that their travel allowance covers the necessary insurance – once again keeping in mind that rates will vary depending on the type of vehicle as well as the employee’s claim record and age.

It’s also a good idea to help employees choose the right insurance package. Insurance policies and the fine print can be difficult to decipher and it’s tempting for everyone to simply choose the cheapest option. By offering to help employees find the right insurance policy, companies can ensure that employees have sufficient cover and reduce the risk of downtime in the event of an accident.

Read Company cars vs travel allowances - which one to choose


3. Maintenance checks

With a travel allowance system, the company has no control over the maintenance and servicing of vehicles. Once again, the risk is that employees might skip required services or neglect to properly maintain their vehicles in order to save money. Even though the vehicles are private property, companies can make service or maintenance reports part of their travel allowance policy. This will reduce the risk of poor vehicle maintenance and also give the business a good overview of the cost to each employee, which in turn will help with ensuring each employee’s travel allowance covers all necessary expenses.

Maintenance checks or reports should also include vehicle condition checks. Any vehicle that is used for business purposes reflects on the company image, and you don’t want employees representing your company to drive around in vehicles full of scratches, dents or corrosion. Employees can’t be forced to repair dents or scratches, but regular checks are an incentive to do so (and if their travel allowance or insurance makes provision for such repairs).

A travel allowance system can be difficult to manage, simply because the company has no legal control over the vehicles. But structuring a travel allowance policy that fully covers all costs, and includes incentives for employees to keep vehicles in good condition, will greatly reduce the risk of unnecessary costs, uninsured vehicles and employee downtime due to poor vehicle maintenance.

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