If you have a wood flooring business that is doing well, no doubt you have explored the possibility of having a company vehicle. There are many practical reasons for having a company vehicle.
Well-maintained, clean company vehicles with a consistent look can help establish a professional business image. Company vehicles can have company advertising on them, making them rolling advertising for your business. A well-maintained company vehicle will ensure that your work crews make it to the job site. Company vehicles can be loaded up with the next-day’s job site materials and can retain tools that the company would otherwise want returned and stored. Also, a company-owned vehicle is generally going to be written off as a business expense, including any maintenance costs and loan or lease interest.
Also, a company car must be covered by commercial vehicle insurance, which is often more expensive than individual insurance.
Of course, there are two sides to every coin. Having a company vehicle adds levels of complexity to a business. There are new liabilities, potentially greater law enforcement fines and even the risk of punitive damages. Before a business puts its company vehicles in gear, it should understand the challenges around the corner.
The Downsides
The biggest downside is that company vehicles are business liabilities. While a business is nearly always exposed to claims against an employee for acts done while the employee is working, that exposure is increased with the company vehicle. For one, a company vehicle is never “off the clock.” An employee who gets in an accident driving his own vehicle home from work is “off-duty” and the employer generally has no liability. But when the employee is driving a company vehicle, even if he is “off-duty,” that vehicle is still registered to, owned by and often has a big sign identifying your business. Even if the company is ultimately not responsible for the accident, it will very likely be named in the lawsuit. Also, a company car must be covered by commercial vehicle insurance, which is often more expensive than individual insurance. A company might have a gross annual value that greatly exceeds its owner’s personal income and assets, and therefore often has to have additional coverage that makes it more expensive to own.
Maintenance Liabilities
Likewise, while no one should neglect proper vehicle maintenance, companies are likely to be held to a higher standard than the average Joe. If that average Joe fails to properly maintain his vehicle and as a result it gets in an accident, it would still be considered general negligence. But if a company neglects regular maintenance and as a result the vehicle is more dangerous, the company may be looking at a potential gross negligence claim—which opens up the possibility of a claim for punitive damages. The company that fails to adequately maintain its vehicles and to have written driver policies and procedures also potentially exposes itself to Occupational Safety and Health Administration violations and resulting penalties.
Commercial License Costs
If the company vehicle is used to tow equipment, in some jurisdictions the vehicle has to be registered as a commercial vehicle, which not only will result in greater license fees or taxes on the vehicle, but also may require the driver of the vehicle to have a commercial driver’s license. When a commercial vehicle gets pulled over for a potential driving infraction, the penalties are higher, and the police will be more inclined to conduct a roadside inspection and discover other violations (e.g., improper weight distribution or a tow combination that exceeds the vehicle’s tow weight limits).
What About Cell Phones?
Every company should have a policy on cell phone use while employees drive a company vehicle, or even a personal vehicle for company purposes. Outright banning may be difficult to enforce and unreasonable for some jobs, but the employer should at least have a “hands-free” policy. Also, the policy has to comply with the legal requirements where the business is located. Some states, and some municipalities, have an outright ban on use while driving. Others may require a “hands-free” device, and still others have no legal prohibition at all.
When considering the business policy on cell phone use, and particularly when the business provides automobile liability insurance, the business should talk to its insurance agent and find out what its insurer requires to ensure coverage under the policy in the event of an accident. It may be possible to get language from the insurance company to put into the business’ policy to address cell phone use restrictions. The same would apply for other types of insurance (e.g., workers’ compensation) and OSHA requirements on construction job sites where cell phone use can pose a hazard as well.
Tax Benefit?
Finally, that tax benefit to the employer may also come with a consequence to the employee, particularly if the employee takes the vehicle home at night and on weekends. That “off-duty” usage by the employee may be deemed a fringe benefit, which the company may be required to track for tax purposes.
Personal Vehicles
What about employees using personal vehicles on the job? If the employee isn’t receiving some kind of stipend for the use of his personal vehicle, that employee may come to resent the employer’s free use of the vehicle. So the employer may want to at least spell out that the employee’s compensation includes an additional sum for vehicle use.
An employee who isn’t given a stipend for personal vehicle use may be able to deduct the mileage, but there are often limitations on business use of a personal vehicle, and the employee’s ability to deduct the expense may depend on that employee’s income and ability to take itemized deductions. Meanwhile, if the employee receives compensation for the use of the vehicle, that compensation may end up being additional taxable income, particularly if the employee does not track business-use mileage and expenses.
A company may be able to deduct for the employee’s use of a personal vehicle to the extent that the company reimburses the employee for that use. However, to obtain that deduction, the company will generally need to track the business use of the vehicle. That means having a logbook and keeping specific records of mileage and maintenance costs that are reimbursed. What about liability? Even if an employee uses his own vehicle, the company is still exposed for non-owned automobile liability if that employee gets into an accident while “on the job.” Also, that “off-duty” exception may not apply if the company requires the employee to use the vehicle in employment.
Not a Speedy Decision
Ultimately, the decision to use a company vehicle should not be taken lightly. Before making the decision, these factors need to be carefully weighed. The total costs, including insurance and maintenance, should be taken into account to determine whether there is additional profitability potential. The company needs to have a maintenance plan for the vehicle, and written policies and regulations with the employees governing its use.
Regardless of whether the vehicle is company-owned or not, the company will want to have a policy of verifying insurance coverage, having itself named as an additional insured on the employee’s automobile insurance, and it should ensure that its driving employees maintain good driving records. Thus, regardless of ownership, the company who has employees driving on the job should have policies and training to ensure good driving. And the company may want to have an umbrella policy to protect against an underinsured situation.
