Is a travel allowance the best way to provide vehicles to your business?

A company vehicle has financial implications for both employer and employee. We take a look at the pros and cons of opting for company fleet vehicles or a travel/vehicle allowance.

The practice of supplying company vehicles, or a travel/vehicle allowance, as part of remuneration packages is common across all industries. In South Africa, where public transport is unreliable, this is a sought-after benefit for many employees.

For employers, the benefits range from tax reductions to ensuring their workforce is mobile and not dependent on erratic public transport. When it comes to segments such as sales representatives or any business that requires frequent travel, it simply makes sense to ensure employees have reliable transport. It ensures that business objectives are met. 

When it comes to keeping staff mobile, companies traditionally have two options: supplying a vehicle that is owned by the company, or paying a travel/vehicle allowance so that employees can acquire their own vehicles. 

There are many factors that dictate which option works best for you. Everything from company size, what the vehicles are needed for, to personal preference. Some companies even opt for both where executives might receive an allowance to purchase a vehicle of their choice, while mid-level staff are provided with company vehicles.

As with most business decisions, each one has its own pros and cons. A proper audit of company needs and finances should be done to decide which solution will be most cost-effective. 

Travel/vehicle allowance

A vehicle allowance is a predetermined amount that gets paid to the employee to use to either pay or lease a vehicle. This allowance forms part of the overall remuneration package with the intention that the full amount will be used to acquire a vehicle that enables the employee to do their job. It could also be a perk, but the basic principle remains the same. 

Pros for employer 

• Staff take full responsibility for vehicles as they are the owners 
• No additional admin or fleet management necessary for the company

Pros for staff 

• Employees get to choose their own vehicle and it is their property
• Unlimited private use as the company does not own the vehicle
• Staff own vehicles outright, which means vehicles are not returned should they leave the company 

Cons for employer 

• Although there may be an unofficial agreement as to the type of vehicle required, the company can’t dictate which vehicle is purchased
• No guarantee that the vehicle will be properly maintained, which could lead to employee downtime
• No guarantee that the vehicle will be insured, which could also lead to extended downtime if the vehicle is stolen or damaged
• Brand image: there is no guarantee that the vehicles will be kept in good condition, which could create a poor brand perception if employees are meeting with clients in dirty and dented vehicles

Cons for staff 

• The responsibility for the vehicle is 100% on the employee as they own the vehicle
• All maintenance, service and tyre costs must be carried by the employee
• All insurance and repair costs must be carried by the employee
• In many cases, the cost of vehicle maintenance will catch staff off-guard and that could mean taking on some personal debt to keep the vehicle running so that they can continue to do their work

The question, “which is better, Company Car or Travel Allowance?” has been a long-standing debate. To understand the present position on this topic, we will be disseminating a survey, to customers that choose to participate. 

Participate in the survey here: https://engagesurveys.co.za/Eqstra/cgi-bin/ciwweb.pl?studyname=Eqstra&LinkID=A

Company vehicle 

A company vehicle is owned by the business and not by employees. The use of a company vehicle is calculated in Rand value and also forms part of the overall remuneration package. The benefit is that staff have full use of company vehicles and therefore don’t need to purchase a vehicle of their own. 

Pros for employer 

• Companies can choose vehicles that are 100% fit for purpose
• Fleet deals often mean reduced purchase costs
• Employers can ensure that all vehicles are ensured and properly maintained. This ensures consistency and reduces the risk of employee downtime due to lack of transport
• Employers can set up vehicle usage guidelines that allow for a specific amount of private use, monthly mileage, fuel spend etc - they have a lot more control over company vehicles

Pros for staff 

• Use of a company vehicle
• All insurance and maintenance costs are handled by the company
• No need to apply for vehicle financing or budget for tyres
• Most company vehicles allow for reasonable personal use

Cost for employer 

• All vehicle responsibility falls on the company. From registration to maintenance
• Managing a company fleet is admin-intensive
• Any unexpected costs, such as repairs, are the responsibility of the company

Conclusion 

The above points should give you a good idea of the key differences between opting for a vehicle allowance or company cars. Both are viable and the choice will depend on which makes the most long-term financial sense for the business.

There are many factors to consider before deciding whether a vehicle allowance or a company car is the best decision for you. Either way, this vehicle will be used for business which means you will need a reliable logbook to track your vehicle usage.

The logbook information can also give you a clear picture your business vehicle needs and this could help with the decision between an allowance or company fleet.

No matter what type of company fleet you have (allowance/company fleet) you will always need resources such as a comprehensive company car policy or guidelines for the use of personal vehicles for business purposes. Take a look at our detailed examples to get a clear idea of what you’ll need for your business.