Many companies, especially those that require employees to travel long distances by car, will offer employees two options: a company car or a car allowance. Both provide pros and cons for the company and for the employee. As an employee it is important that you consider your particular circumstances while weighing the pros and cons of each option. Here are some things you consider when trying to determine if a company car or a car allowance will be right for you.
When you choose to use a company car, there are many benefits. Often when a company offers you a car, the car is under their name, so you will not be the owner. This means they are responsible for all costs, maintenance, mortaring costs and well as rule expenses in most cases. This is usually a great option for the employee because when you are not the owner, you do not have to worry about car depreciation. Often a new car loses about 50% of its value within the first three years even if it is well maintained. Your company will then provide you with a new car every 3 years or so, so that they won’t have to pay for and you won’t have to deal with the wear and tear of an older car. The main disadvantage of a company car is that as an employee you will be taxed on this taxable benefit deepening on where you live as well as other factors.
A car allowance arrangement involves the employee driving his or her own personal vehicle for all business related travel. The employer would then give the employee a mileage rate. You will get reimbursed, essentially, for every mile you travel for work. You must record document and submit these miles for review. This is a good option because at the end it is still your vehicle, however you will be responsible for insurance like cheap auto insurance in CO, maintenance and more. In addition, you will need to consider depreciation, since the car’s value will decrease each year you own it, meaning you won’t get as much back when you go to sell it later on.
If offered the option of choosing between a company car and a car allowance, you really need to consider what is most cost efficient and practical for you. When you get a company car, you do not have to worry about most of the responsibilities of maintaining the vehicle like repairs and maintenance, however you will need to pay taxes on the car each year. When you own your own vehicle and use a car allowance, you can get reimbursed for all business related mileage, however you will also be responsible for all car car and you will experience depreciation of your car over time and with continued use. Each option presents benefits as well as down sides, but the decision will be specific to your particular needs, your company as well as other various factors.