Bei einer Car Allowance bleibt das Fahrzeug im Privatbesitz des Mitarbeitenden.

Car allowance vs. company car: the advantages and disadvantages of the car allowance

Company cars are an integral part of German fleets and indispensable for many employees. In August 2022, the Federal Motor Transport Authority recorded an increase of 2.8% open_in_new compared to the previous year, with around 125,000 newly registered cars for commercial use. The principle of car allowance, on the other hand, is less widespread in Germany. In this blog post, we explain what the term means and what advantages and disadvantages the concept has for vehicle fleets.

What is a Car Allowance?

A car allowance is a financial compensation for employees who undertake to use their private vehicle for business trips. This means that the employee does not have a company car or pool vehicle at their disposal, but uses their own vehicle for business purposes. In contrast to a company car, the vehicle remains the private property of the employee.

The additional payment can be used to finance the car and cover any costs, e.g. for repairs. The amount can vary depending on the type and size of the vehicle and the employee’s position. In the USA and the UK, the concept of car allowance has been practiced for some time, and for German fleets too, the car allowance is a practical alternative to a personal company car.

Company car vs. car allowance: the differences

There are a number of differences between the classic company car and a car allowance:

Car Allowance

  • Employee is responsible for the purchase, maintenance and insurance of the vehicle
  • Vehicle remains the private property of the employee
  • Driver’s license check and driver instruction according to UVV not applicable

Company car

  • Is mainly used for business purposes and private use, if permitted, must be documented
  • Acquisition, maintenance and repairs are handled by fleet management
  • Fleet management must comply with owner liability obligations
  • Must be returned after termination of the employment relationship

Advantages of a car allowance for companies

A flat-rate car allowance not only offers advantages to employees, companies can also benefit from such financial compensation.

Firstly, it reduces fleet costs, as fewer vehicles need to be purchased or leased and there is no need to spend on purchasing and insurance. As the employee is responsible for maintenance and repairs, which otherwise account for a large proportion of the costs in the fleet, the expenses for the fleet are also reduced here. Even if the payment covers the wear and tear of the vehicle and repair costs, the monthly rate is usually lower than the rate for a leased vehicle.

At the same time, the administrative workload for fleet management is reduced, as fewer vehicles need to be purchased, organized and maintained. Owner liability tasks such as driving license checks and driver training in accordance with accident prevention regulations are also no longer necessary, as a private vehicle is not an operating asset.

Some employees prefer to drive their own, familiar car. If they are now allowed to use the vehicle for business trips, this can have a positive effect on satisfaction.

Disadvantages of a car transfer allowance for companies

Nevertheless, there are also disadvantages that a car allowance entails for companies. The employer has little say in the choice of private vehicle. If it is an older, unrepresentable vehicle, this can have a negative impact on the company image open_in_new .

It can also be difficult to determine an appropriate car allowance that is economical for the company and at the same time meets the employee’s requirements.

Bei einer Car Allowance kann das Auto auch bei einem Arbeitgeberwechsel behalten werden.
Eine Car Allowance ist vor allem in finanzieller Hinsicht attraktiv für Unternehmen, da u.a. die Kosten für Leasing, Werteverlust und Instandhaltung wegfallen.

Introducing a car allowance: how to proceed

We have summarized the most important steps to ensure that the implementation of a car transfer fee in your fleet is a success;

  1. Determine the amount: Set an appropriate lump sum that both reflects your financial situation and meets the needs of your employees.
  2. Draw up a contract for car allowance: To prevent misunderstandings or ambiguities later on, all regulations relating to the Car Allowance should be set out in a contractopen_in_new . Take into account the amount, the method of payment and the settlement of the car allowance.
  3. Documentthe necessary evidence: To ensure that the private vehicle is really being used for business purposes, employees should provide appropriate proof. This can also avoid potential problems with the tax authorities. Companies should also document all payments so that they can be proven in the event of a tax audit or legal dispute.
  4. Review and make adjustments: Check regularly whether the car allowance still meets the needs of the employees and the economic interests of the company. If not, the regulations and the amount should be adjusted.
  5. Communicate internally: Make sure that you communicate transparently to your employees and that it is clear how the Car Allowance is handled and what conditions must be met.

What is the difference between a car allowance and a mobility budget?

The concepts of car allowance and mobility budget should not be confused with each other. In general, both concepts involve a lump sum that is usually paid out monthly and is intended to ensure the mobility of employees.

With a car allowance, however, employees must prove that the private vehicle is used for business purposes. Only then are you entitled to the allowance.

The mobility budget, on the other hand, can be used flexibly for different means of transportation. Whether public transport, bike leasing or car sharing, employees can use the budget and combine different mobility solutions to suit their needs. For many fleets, the mobility budget already supplements the company caropen_in_new in the fleet.

The most important facts about Car Allowance at a glance

A car allowance is a financial compensation for employees who also use their private vehicle for business purposes.

The advantages of a car allowance for companies are cost savings in the vehicle fleet, less administrative work and potentially happier employees.

The car allowance should not be confused with a mobility budget, which can be used flexibly for various means of transportation such as public transport or bike leasing.

Further Fleet Knowledge

If you liked this article and would like to know more about this topic, we recommend these articles.

Fleethouse knowledge hub
All contributions

Mehr über Fleethouse auf