Why Reimbursement Doesn’t Work from an HR Perspective
Since a corporate fleet consumes a large percentage of a company’s operating budget, it is a tempting target in cost-cutting programs. Some corporate managers believe that driver reimbursement is less costly than a company-provided vehicle. However, as we all know, it is actually more expensive for employees to use their personal vehicles for business. What isn’t discussed as much are the HR implications of a reimbursement program.
Often, salespeople whose job requires the use of a vehicle are recruited straight out of college. At this age, many employees have little or no credit history, little or no cash for down payments, and have an inadequate understanding of the need to match their personal vehicle financing and operational costs with a monthly car allowance. Many employees see a reimbursement allowance as personal income. Furthermore, there is no guarantee that the reimbursement provided to an employee driver will be used for a vehicle but rather to make college loan, mortgage, health, or insurance payments. Also, the company cannot distinguish whether fuel is purchased for personal use or business use.
Sometimes employees need the company to co-sign a loan and lease. Fleet managers have told me that some employees have run short of cash and have to ask the company for a loan to repair their personal vehicle to continue working. One fleet manager told of an instance in which a transmission went out and the rep did not have the money for repairs or a replacement rental vehicle. The company loaned the money to make the repair. Also, since preventive maintenance is an immediate, out-of-pocket expense, there is a temptation on the part of the employee to postpone routine maintenance, as well as more expensive mechanical repairs. Depending on an employee's financial wherewithal, some may find it difficult to pay for repairs out-of-pocket. Neglected PM can lead to breakdowns, downtime, and unnecessary car-rental expense. A reimbursed driver has to spend time coordinating repairs, maintenance, rentals, and registration renewals, which could otherwise be devoted to selling the company’s products or services. It is not uncommon for drivers not to repair their vehicles after an at-fault accident because of limited finances.
Driver reimbursement negatively affects driver morale because some drivers are overpaid while others are underpaid. If the car allowance is provided to a low-mileage driver, the employee enjoys additional compensation. For high-mileage drivers, the car allowance may not be sufficient to cover the employee’s cost, resulting in poor morale because he or she feels cheated. These employees believe reimbursement programs are inequitable since they are being made to subsidize the company’s operating costs.
Leasing a Vehicle is More Difficult
The high mileage driven by fleet drivers, averaging 24,000 miles per year, means that many employees are precluded from obtaining a personal closed-end lease. If a driver is able to lease a vehicle, excess mileage charges can be expensive in a closed-end lease. High-mileage drivers are usually upside down at the end of lease term with a balloon payment due for excess mileage. Also, some employees are reluctant to perform business-related work that may damage their personal vehicle, especially if it is leased, since it could result in additional wear-and-tear charges.
Inadequate Auto Insurance
If a vehicle is not provided by the company, then the company must be certain that the driver has sufficient insurance to protect it from exposure should there be an accident while the driver is on company time. It is difficult to confirm driver compliance with your company’s insurance requirements under a driver reimbursement program. Insurance companies often require that drivers who use their own vehicles for business carry a certain dollar level of insurance or report that their car is used for business, which requires paying a higher premium.
A company-provided vehicle can be used as a recruiting tool and company benefit. Providing a company vehicle gives your company a competitive edge in hiring top-caliber salespeople, technicians, and managers. Past industry surveys have shown that prospective employees view a company vehicle as an equivalent benefit to healthcare coverage and pension benefits. Trying to hire prospective employees who already have a fleet vehicle by offering a reimbursement program puts a company at a hiring disadvantage. Prospective employees realize that they will be forced to make a large outlay of money to purchase or lease a new vehicle and pay for auto insurance.
While a reimbursement allowance may have an initial appeal by enabling the employee to choose the vehicle of his or her choice, the employee quickly realizes that it is not the best economic choice for them, and typically not for the company either. It is for these reasons that HR directors should discourage senior management from adopting driver reimbursement programs.
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