Personal Use Charges Increase in 2008

Automotive Fleet’s 2008 personal use survey reveals that more than 87 percent of commercial fleets surveyed still allow personal use of company vehicles (Chart 1), steady from the 2006 survey. Of the fleets allowing personal use, 76.4 percent allow personal use at all times, whenever necessary.

Personal Use Conditions

Of the fleets that allow personal use, 58.8 percent permit an employee’s spouse to use the vehicle, down from 63 percent in 2006 (Chart 2).

The percent of fleets prohibiting personal use by persons other than employee drivers, 30.6 percent, decreased 3.8 percentage points from 2006 numbers. Licensed children allowed to drive a company vehicle declined to 1.2 percent.

Motor vehicle record (MVR) checks assist fleets in determining employee driver risk. Holding steady from 2006, 59.5 percent of fleets surveyed utilize MVR checks on non-employees who drive a company vehicle.

Most fleets, 76.4 percent, allow personal use at all times, whenever necessary (Chart 4), while 12.7 percent of fleets surveyed only permit personal use to and from work (up from 10 percent in 2006).

The most common factor governing the assignment for company-provided vehicles is job function (76.8 percent). The number of annual business miles driven (45.8 percent) and job title (39.9 percent) follow as the second and third most common factors (Chart 5). Assignment of a company vehicle as a fringe benefit increased two percentage points from 17 percent in 2006 to 19 percent in 2008.

Charging for Personal Use

Fleets have been re-evaluating personal use charges. Several fleets commented that they had raised personal use charges from 2007 to 2008. One fleet worked with its tax department to determine what the increased charge should be, while other fleets compared charges across divisions. Fleets are being forced into developing ways to recoup some personal use expense without removing personal use privileges completely.

The high cost of fuel prompted one fleet to consider having employees pay for fuel used on personal vacations. According to the fleet manager, this policy change is still in the review process.

Another fleet increased charges by $25. "We determined the increase by taking the overall annual average percent of personal use and multiplied it by our average monthly vehicle costs," said the fleet manager. Other common factors considered when raising personal use charges are operating company, industry benchmarks, and vehicle selectors.

One fleet is lowering current charges following a reorganization of the driver pool (due to a new joint venture). "The drivers from the parent company deducted at a lower level [than we did]," the fleet manager reported. "We decided to decrease the deduction for the other drivers to get everyone on the same rate."

Fleets that do not charge for personal use, but still provide company vehicles, see the vehicle as a benefit and recruiting tool for drivers, particularly sales staff in the pharmaceutical industry.

When determining what to charge for personal use, the most popular options (30 percent) are industry averages or competitive benchmarks (Chart 6). Following in second place is a prorated annual lease value (29.2 percent). Other popular options are including a fuel benefit (24.2 percent) and calculating cost to the fleet (19.2 percent).

Most fleets (58.9 percent) charge employees directly for personal use, up from 51.1 percent in 2006. If employees are not charged directly, most fleets (87.5 percent) include the amount on an employee’s W-2 as income (Charts 7 and 8).

A majority of fleets (67.6 percent) perform an annual personal use reconciliation or true-up. The number of fleets that do not perform personal use reconciliations has remained steady at 23.2 percent, approximately the same percentage as in 2006.

Most personal use charges are collected via a payroll deduction (81.5 percent), a practice up from 76.9 percent in 2006 (Chart 10).

If an at-fault accident occurs during personal use, most fleets (58.9 percent) charge a portion of the repair costs to the employee, an increase of 21.4 percentage points over 2006 (Chart 11). This dramatic increase is due to the increased cost of vehicle repairs and personal use costs in general.

When employees are required to utilize a personal vehicle for business, most fleets (89.2 percent) reimburse a per-mile rate, down from 94.3 percent in 2006. Gaining in popularity are flat monthly and combination per mile/flat rates, both methods up 1.5 percentage points over 2006.

Actual personal use charges average $103 per month, with most fleets (66 percent) charging between $100 and $150-plus monthly.

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Personal Use Issues

Personal use can be a sensitive issue. Driver’s don’t want to give up their company vehicles and no one wants to increase their monthly bills. Other issues include drivers not routinely reporting their miles.

One main issue noted by fleet managers arises from drivers insisting they do not utilize a company vehicle for personal use. Since the drivers have personal cars, they claim there is no personal use of the fleet vehicle. Several fleets do not allow drivers to waive the personal use charge and suggest they use or lose the miles. One fleet manager questioned whether the IRS will revise the exact definition of personal use.

Advice from the Field

The AF survey asked fleet managers for suggestions on dealing with personal use issues.

One fleet manager said, "Anyone who complains about anything related to personal use (miles reporting, charges, etc.) needs to stop and think what it would cost to maintain another vehicle in their family if they didn’t have the company- provided vehicle. Our charge would hardly pay the insurance, let alone cover depreciation, gas, and maintenance."

Another noted, "You must make sure drivers understand why a personal use charge is being assessed. IRS guidelines can be translated into clear language and most everyone understands there are regulations of providing a benefit. Keep all messages clear, concise, and organized."

A final piece of advice from the field, "Make sure you do an annual personal use review, whether there has been a dynamic change in expenses or not. The drivers need to recognize this as a standard process. Also, this practice will allow smaller increments [in personal use charges.]"

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