From company image to liability concerns, there are many reasons reimbursing your drivers ends up costing you more. When you own or lease your fleet, you have the added benefit of discounts on purchasing and maintenance because you're ordering in bulk. Let's dive into the specifics behind company-provided fleets versus employee-owned vehicles.
A company-provided vehicle is seen as a benefit to many employees. In fact, company provided vehicles can be used as a tool for recruitment and increase employee retention. This is especially true if you’re trying to hire someone who already has a company vehicle. Convincing them to purchase a new vehicle and be reimbursed for mileage will potentially discourage them from wanting to work for you. When someone has a company-provided vehicle, they feel the company trusts them and values the work they do.
It’s probably not surprising that employee-owned vehicles may not be as nice in appearance as company-provided vehicles. The wrong vehicle can send the wrong message to potential or existing customers. Consider if your vehicle will be seen on the road, at a meeting or on a job site. Some companies also place company decals on their employee driven vehicles. This is much more difficult to do with people’s personal vehicles. In addition, you could be missing an opportunity for additional advertising with employee owned vehicles. With company provided vehicles you can place the company logo, slogan, and other information on the outside to create a mobile billboard. This is definitely not an option with employee-owned vehicles.
The amount a company reimburses a driver may not be enough to cover all the actual expenses. As a result the employee may delay reparative or, even more likely, preventative maintenance. If an employee driving his or her own vehicle puts off vehicle maintenance and this then results in an accident, liability may be called into question. With company-provided vehicles you can control variables that you just can’t control with employee owned cars and trucks. Even if an accident does not occur, a breakdown can result in downtime, missed appointments, towing expenses and unnecessary car-rentals.
In addition, each individual employee driving their own vehicles is responsible for independently coordinating any preventative maintenance, repairs, rentals, registration and more. Not only is this time consuming, time that could otherwise be used to do their jobs, they are likely to pay more than a company would pay for an entire fleet of vehicles. Furthermore, if you use a professional fleet management company to manage your vehicles they will make better vehicle-related decisions than individual drivers would. Not only can a fleet management company control lifecycle costs by finding the most cost effective replacement cycle for your vehicles, they also deal with fleets all day, every day, and have much more experience.
Finally, your employees driving their own vehicles may carry inadequate insurance. If liability insurance premiums are paid by the company there are no surprises. However, with driver reimbursement you may find many drivers with insufficient insurance which puts your company at a great risk.
Benefits of Bulk
As we just mentioned, it is much more costly for individuals to maintain and repair their personal vehicles than it is for a business to do it for company owned vehicles. Not only can a fleet management company purchase vehicles at wholesale cost and take advantage of manufacturer fleet incentives, while employees must pay retail, but a fleet management company can finance a vehicle at more competitive interest rates than an individual can. In addition, since a company is purchasing maintenance in bulk they have lower costs than an employee would for a repairs and maintenance. If your company provided fleet is well managed it will have lower costs overall due to the discounts that come with economies of scale.
What You Can’t Control
Drivers on reimbursement can be tempted to pad their mileage in order to increase their reimbursement allowance. Drivers typically keep poor records of when, where and why they drove. This means many companies reimburse employees for mileage without truly knowing if it was business or personal. Of course, you can monitor against this, but it’s time consuming and labor intensive. In addition, many employees see a vehicle allowance as part of their personal income. This means when it comes time to replace their vehicle, the employee may purchase the cheapest vehicle possible, even if it doesn’t fully fit their needs, in order to keep part of the allowance.
A company also cannot control who drives an employee-owned vehicle. In some instances, such as with a pharmaceutical company, the vehicle could contain product such as drug samples. It may be important to regulate who can drive the car (and potentially who is appropriately licensed). This is much more difficult to manage with employee-owned vehicles.
Logistics, Logistics, Logistics
For starters, leasing a vehicle for a job that requires a lot of driving will be difficult for many individuals. Fleet drivers average more than 24,000 miles per year while most average drivers only put about 10,000-15,000 miles per year on their vehicles. What this means is many employees may not be able to obtain a personal closed-end lease with annual mileage restrictions. If they are able to lease a vehicle they may still wind up with excess mileage charges that often result in being upside down at the end of a lease with a payment due.
Plus, a fleet provided by a company can be managed with one payment to a leasing company. A reimbursement program requires your company to process expense reports and issue reimbursement checks for everything from fuel to maintenance and repair costs, which we know would also be higher than with a company owned or leased fleet. Not to mention the time your employees spend documenting expenses, searching for receipts, and filling out expense reports.
So, with all this in mind, it may be time to reconsider the state of your current fleet of vehicles. Could outsourcing the management of your fleet offer you advertising benefits, save you money, and reduce risk in the case of an accident? Could working with a fleet management company allow you to feel secure knowing the best choices for your fleet are being made by professionals with experience managing fleets? This is likely the case. If you want to get started with this transition or even just have questions, reach out to Union Leasing. We’re always here to help!