Company cars are an integral part of German vehicle fleets and indispensable for many employees. In August 2022, the Federal Motor Transport Authority recorded approximately 125,000 newly registered passenger cars for commercial use, marking a 2.8 percent increase to the previous year. The concept of a car allowance, on the other hand, is less common in Germany. In this blog post, we explain what the term means and what advantages and disadvantages the concept has for a fleet.
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What is a Car Allowance?
A car allowance is a financial benefit provided to employees who agree to use their personal vehicle for business travel as well. This means that the employee does not have a company car or a pool vehicle at their disposal, but instead uses their own vehicle for business purposes. Unlike a company car, the vehicle remains the employee’s private property.
The additional payment can be used to finance the car and cover any costs, such as repairs. The amount may vary depending on the type and size of the vehicle, as well as the employee’s position. In the U.S. and the U.K., the concept of a car allowance has been in practice for some time, and for German fleets as well, the flat-rate car allowance is a viable alternative to a company car assigned to a specific employee.
Company car vs. car allowance: the differences
There are quite a few differences between a traditional company car and a car allowance:
Car Allowance
- The employee is responsible for the purchase, maintenance, and insurance of the vehicle
- The vehicle remains the employee’s personal property
- Driver’s license checks and driver training in accordance with the UVV are no longer required
Company Car
- It is used primarily for business purposes, and any personal use, if permitted, must be documented
- Purchasing, maintenance, and repairs are handled by the fleet management department
- Fleet management must comply with the owner’s liability obligations
- Must be returned upon termination of employment
Advantages of a car allowance for companies
A flat-rate car allowance offers benefits not only to employees; companies can also benefit from this type of financial compensation.
For one thing, it reduces fleet costs, since fewer vehicles need to be purchased or leased, and expenses for purchase and insurance are eliminated. Since the employee is personally responsible for maintenance and repairs —which otherwise account for a large portion of fleet costs—fleet expenses are reduced in this area as well. Even though the compensation covers wear and tear on the vehicle and repair costs, the monthly payment is usually lower than the payment for a leased vehicle.
At the same time, the administrative burden of fleet management is reduced, since fewer vehicles need to be purchased, organized, and maintained. Responsibilities related to owner liability —such as checking driver’s licenses and providing driver training in accordance with UVV regulations —are also eliminated, since a private vehicle is not considered a piece of equipment.
Some employees prefer to drive their own, familiar car. If they are allowed to use that vehicle for business trips as well, this can have a positive effect on their satisfaction.
Disadvantages of a car transfer allowance for companies
Nevertheless, there are also disadvantages associated with a car allowance for companies. The employer has little say in the choice of a personal vehicle. If the vehicle is older and not presentable, this can have a negative impact on the company’s image.
In addition, it can be difficult to determine an appropriate car allowance that is cost-effective for the company while also meeting the employee’s needs.
Introducing a car allowance: how to proceed
To ensure the successful implementation of a flat-rate allowance for personal vehicle use in your fleet, we have summarized the most important steps for you;
- Determine the Amount: Set an appropriate lump-sum amount that reflects both your financial situation and the needs of your employees.
- Drafting a Car Allowance Agreement: To prevent future misunderstandings or ambiguities, all provisions regarding the car allowance should . Be sure to include the amount of the allowance, the payment method, and the billing procedures for the car allowance.
- Document therequired evidence: To ensure that a personal vehicle is actually used for business purposes, employees should provide appropriate documentation. This will also help avoid potential issues with the tax authorities. Companies should also document all payments so that they can be substantiated in the event of a tax audit or legal dispute.
- Review and Make Adjustments: Regularly review whether the car allowance still meets the needs of employees and aligns with the company’s business interests. If not, the policies and the amount of the allowance should be adjusted.
- Internal Communication: Make sure you communicate transparently with your employees so 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 terms “car allowance” and “mobility budget” should not be confused with one another. Generally speaking, both refer to a lump-sum payment—usually made monthly—intended to ensure employees’ mobility.
However, in the case of a car allowance, employees must provide proof that their personal vehicle is used for business purposes. Only then are they entitled to the reimbursement.
The mobility budget, on the other hand, can be used flexibly for various modes of transportation. Whether it’s public transit, bike leasing, or carsharing, employees can use the budget and combine different mobility solutions in whatever way best suits their needs. For many fleets, the mobility budget already complements the 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.
Mobility budget: benefits for employees and companies
Workshop checklist: How to find the best workshop
