How to Develop Fleet Policy for a Small Fleet

As fleet manager, your responsibility is to run your vehicle operations as economically and efficiently as possible. This is the goal of all managers, yet many fail, especially those managing smaller fleets. One reason a fleet operation may be inefficient is the absence of a fleet policy which, defines the company's and the driver's vehicle responsibilities.

What are the steps in establishing a corporate fleet policy?

First, it is necessary to create a policy statement that broadly defines which employees are eligible to receive a company car and how it should be used. The policy statement should specify that the vehicle is to be used for business and state whether personal use is allowed and its limits. Basically, a policy statement is a preamble to your actual fleet policies. When developing a policy statement, it's important to put it in writing since it will be more carefully formulated and less prone to misunderstandings.

Developing Policy

What policies should you develop? The way to answer this question is to visualize the different areas of your fleet operation that require a specified procedure or policy. These include accident management, personal use, and insurance coverage, to name a few. Once you've identified areas requiring policies, elaborate on the specific details and procedures. However, even a carefully formulated policy has limitations. It would be virtually impossible to put together a policy which would cover all contingencies. Therefore, fleet policy should be flexible to allow for exceptions when required.

There are two ways to formulate fleet policy. One is by committee, which involves upper management. The other is to do it yourself and submit the proposed fleet policy to management for approval.

Outlined below are suggested fleet policy topics and specific items that should be addressed for each guideline.

Driver Eligibility

Although employee eligibility was covered in your policy statement, this topic requires much more elaboration. Spell out eligibility requirements as to whether they are based on job function, title, compensation package, or minimum number of business miles driven per year.

Also, this section should state the circumstances under which an employee's privilege to drive a company car could be withdrawn. These may include the abuse or misuse of the vehicle, excessive accident points, or the conviction of driving under the influence of alcohol or drugs.

Vehicle Selection And Replacement

Next, outline the make and model of vehicles the company currently provides as fleet cars. Most fleets offer different levels of vehicles depending on a driver's job function or title. If there is more than one level of operator, the type of car authorized for each level must be specified.

This section should also indicate what optional equipment is available. If employees are permitted to purchase additional optional equipment for their company-provided car, the charge for this equipment and how it will be made must be carefully explained. The policy should point out that driver-purchased options becomes company property if the employee resigns or is terminated and that it is the employee's financial responsibility to maintain this equipment.

In some cases, a specially-converted vehicle may be required to meet certain fleet applications. The rules and procedures governing converted vehicles should be presented in this section.

The company's vehicle replacement policy should be explained in detail, specifying mileage limits, length of service, and any other vehicle replacement considerations.

Maintenance

Although some control is necessary over regular repair expenses, it also should be flexible. Simply put, it is too time consuming for a fleet manager to approve every repair. Guidelines should be established to provide a certain freedom of decision on the part of the vehicle operator so repair work under a certain dollar amount can be done without prior approval. However, all major repairs over this dollar amount should be referred to the fleet manager or to a fleet management company, especially if it is for accident repair. The fleet department should require prior approval for all accident repair work regardless of cost. This is to ensure that all repair work and the required accident report and insurance forms are properly completed.

Manufacturer guidelines specified in the vehicle's owner's manual and warranty coverage should be used to define "normal wear and tear" in order to prevent the abuse or misuse of an assigned vehicle.

Many fleets employ a national account program for fleet maintenance. In this case, procedures for tire and battery replacements should be outlined in fleet policy. If these items are available on a national account billing, specify that such equipment is only purchased through companies with whom agreements exist.

Safety Program

All fleet policies should include a section on safety. This is one of the more important parts of a corporate fleet policy. When a company assigns an employee a vehicle, the company is responsible for educating the driver about safety. (There is presently a proposal from the Occupational Safety and Health Administration to make company driver training mandatory. See page 31.) In addition, the safety policy should outline the procedure in case of an accident and how to properly prepare accident reports. This information also should be provided in the insurance packet a driver is required to keep in his or her vehicle. Employee drivers should be required by fleet policy to report all accidents to the police, and file accident reports with the insurance company, in addition to submitting them to the fleet department. If incentives are offered to encourage safe driving, the rules governing these programs should be spelled out in this section. Also, a disciplinary procedure should be developed to deal with problem-prone drivers.

When leaving a fleet vehicle unattended, drivers should be instructed to take certain precautions such as locking doors, rolling up windows, and concealing from outside view all items that would identify it as a company car.

Insurance Coverage

In all cases, it is critical that a company carry liabi1ity insurance for its fleet drivers. However, collision, physical damage, and comprehensive insurance coverage is another question. Typically, most companies self-insure these risks.

Here are some questions you need to ask in regards to insurance: Will there be shared responsibility for vehicle damage incurred while it was being driven for personal use? Who is responsible for the deductible in the event of an insurance claim? Who is responsible for accident costs if it involves the employee's spouse or children? The best place to get the answers to these questions is with your insurance carrier or your company attorney.

Drivers also need to be instructed to keep their insurance cards and packets within their fleet car at all times. In most states, a driver can be fined if this insurance information is not in the vehicle.

It is also a good idea for fleets to develop a vehicle data sheet to record an employee's home address, driver's license number, supervisor, and pertinent vehicle information. This is important since it is used to issue insurance cards and packets. It's crucial to update this information at least several times a year. Also, department managers should be requested to notify fleet operations whenever an employee driver is terminated, when new employees are hired, when vehicles are reassigned to different drivers, and when employees are transferred from one division to another.

Personal Use

The first decision to make is whether personal use is permitted and, if so, under what circumstances. For instance, is personal use restricted to the employee or are licensed spouses and children allowed to drive a company vehicle? How will the company be reimbursed by the employee for personal use? Can the ear be used on vacations or taken out of the country? Whose insurance applies? Can a company vehicle be used to tow a trailer?

In return for allowing personal use, many employers charge drivers an appropriate share of operating and fixed costs for the vehicle. Personal use charge backs can fall into three categories: cents-per-mile, do11ars-per-month, or a combination of the per-mile and per-month rate. The charges should be based upon a percentage of the fleet's actual fixed and variable expenses. The average charge is 18.6 cents per mile, which can be deducted from the employee's regular expense reimbursement or by an automatic payroll deduction.

Traffic Tickets

Typically, all moving and parking violations are charged to the employee. However, where parking is scarce, many companies take a more lenient approach to reimbursing overtime parking tickets.

Driver Recordkeeping

Management should determine what cost control or statistical records it requires from drivers to monitor the operating expenses of the fleet.

Drivers should be required to record on a company-provided form the total miles driven each week. An easy way to maintain these records is for a driver to record weekly odometer readings every Friday evening or Monday morning. A driver should indicate the accounts called on in order to have the recorded business miles counted as a qualified business expense. In addition to business miles, personal use should be logged each week. There are two types of personal use commuting and non-commuting. Non-commuting personal use is personal travel other than commuting such as vacation or shopping trips. In addition, this mileage data should be recorded for each company vehicle that an employee has driven that year. To minimize this administrative burden, drivers should be instructed that it is their responsibility to break out their total business miles, commute miles, and non-commute miles during the course of each year.

Employee-Owned Vehicles

A company has a choice as to whether they will reimburse employees for the business-usage of their personal cars on either a cents-per-mile or monthly basis. Currently, the average cost-per-mile reimbursement is 24.4 cents, according to a recent survey by the National Association of Fleet Administrators. One company's monthly reimbursement program calls for a payment of $250 per month and 10 cents per business mile driven. This same company also pays a depreciation adjustment of $51 per 1,000 business miles driven over 20,000 business miles for a specified one-year period while the employee is responsible for all operating costs and insurance.

It is a good idea to require employees using their personal vehicles for business to provide a copy of their insurance policy in order to verify liability coverage. An incentive for employee's to provide this information is a statement that failure to do so will result in non-payment of their reimbursement request.

5 Steps to Establishing Fleet Policy

 

1. Define the need for a fleet policy, citing specific fleet operations needs.
2. Research. This includes acquiring information from fleet associations, other fleets, manufacturers, lessors, fleet management companies, and industry publications.
3. Compare various alternate approaches, programs, or practices of other companies in your industry.
4. Select the best approach that applies to your company.
5. Establish and publish a written fleet policy.

 

Avoiding Fleet Policy Pitfalls

One step in developing fleet policy is to learn from the experiences of other fleets. If you are looking for tips on streamlining this process, an excellent source would be W.L. Gore, a high-tech manufacturing company headquartered in Newark, DE. Fleet Administrator Mary Haas can provide a wealth of tips on how to expedite fleet policy development.

Tip number one: fleet policy should not be too strict, because on occasion exceptions will always have to be made. "You always have exceptions to a policy for different reasons, no matter what it is." For instance, Gore requires an employee to drive an annual 10,000 business miles in order to be eligible for a company car. However, fleet drivers operating in large metropolitan areas are hard put to accumulate the same mileage as those in larger, less densely populated areas. Gore's fleet policy takes this exception into account.

Another area to watch is vehicle selection. Where a problem may arise is during new model pricing. Fleet managers need to be alert for manufacturer price changes that raise cap costs. In the case of Gore, it only selects vehicles that fall within a predetermined cap cost limit. "One advantage is that by predetermining cap cost, it automatically defines the maximum amount of dollars we can spend for replacement vehicles," says Haas.

Another key to an effective fleet policy is the development of appropriate forms. For example, Gore uses a Travel Investment Form to monitor driver expenses. On a weekly basis, the driver would record on the form the ending and beginning odometer mileage, commute miles, and non-commute miles. Another form that Gore uses is a driver record check required of all new drivers. Prior to the record check, a driver and spouse are required to sign this form authorizing the investigation. (Gore allows an employee's spouse to drive a company car for personal reasons.) The company also requires an employee to sign off on a Driver Responsibility and Information Form acknowledging adherence to fleet rules and regulations.

In the past year, Gore has adopted a driver safety program called Decision Driving which is offered in conjunction with the company's insurance company. According to Haas, this program is in accordance with proposed OSHA driver training programs.