It’s never-ending – the discussions in your fleet surrounding company-provided vehicles. And more often than not, personal use is both a sensitive area and a deciding factor. So, how do you avoid an ongoing discussion and flared tempers? You need to decide how you can best accommodate drivers’ needs – work and personal – while minding your bottom line. But don’t worry, the management of personal use can be rather simple; it’s the implementation and reporting that can get a little harried. Here are some aspects to consider when drawing up your policy:
Personal Use Fees
Most fleet managers use industry averages or competitive benchmarks to determine their personal-use charges. Many use a flat rate plus a fuel card. The majority of fleets in the US charge over $100 per month and fees can be collected directly as a payroll deduction if you prefer. Another option is implementing an annual lease value (ALV) program – or, a fair market value of an employee’s personal use. It is calculated by multiplying the ALV of the car by the percentage of personal miles driven. The use of expense accounts has dwindled year over year; one major reason for this is the under reporting of mileage – often unintentional – as the rules regarding mileage aren’t always clear to drivers.
Other/Additional Drivers Allowed
The majority of personal-use policies allow for spousal equivalents to drive the vehicle during off-work hours/trips. Some allow for of-age, licensed children as well. If you are going to allow your employees’ family members to drive the vehicle, we suggest making and providing a clear personal use policy for your drivers. You may even want to have all potential users of the vehicle sign a form that ensures they’ve read and fully understand the policy – just to keep everyone on the same page. Also, be sure to have your policy reviewed by your legal, insurance, HR, and health & safety representatives to make sure it mitigates risk to your company and meets employee retention objectives.
The Commute Rule
Employees who work from home tend to report fewer personal-use miles. Why? Well, to be frank, there is still some confusion for some around the “commute rule.” Traveling to and from the office shouldn’t count as work trips, but employees often group all work-adjacent activity together. For example, if working from home, the first trip to a client office and the last drive home can feel as though they are part of a driver’s “work day” but these trips, in fact, don’t count as work trips and should be reported as personal-use miles. Ensure your policy is explicit in how personal-use mileage is determined and reported – don’t be afraid to throw in an example.
Internal Audit Procedures
Your policy should clearly define the recordkeeping and reporting responsibilities of drivers and fully explain the requirement to submit business and personal-use mileage on a regular, scheduled basis. Remember, the IRS requires employers to attribute income to employees for the personal use of a company vehicle. Having a clear policy regarding employee reporting will help in many ways, from creating more accurate financial forecasts to providing easily accessible documents should you ever be audited. In addition to a clear policy, you can use driver-populated apps that make logging personal mileage easy; you should also check to see if your fleet management company provides driver apps wherein the information is logged automatically and served up to you in a simple format that you can then use to feed your reports. Admin work surrounding personal use is a headache for most fleet managers. Oftentimes, this headache is self-induced and avoidable.
As a fleet manager, you play an integral part in protecting your company. Tax issues can arise from poorly planned and/or executed personal-use policies. Take your time when choosing the elements you want in your policy; seek guidance and input from your in-house HR, legal, and health & safety experts, and try to strike the balance between what’s best for the company’s bottom line and what will entice and keep employees happy. And at the end of the day you might find that you actually don’t want a policy for outside/personal use – do whatever best fits your company culture.