By: Alicia Nesline Shaw
Does your business own a vehicle or fleet of vehicles? Do employees drive their own cars for company business? If so, your business should consider the following steps to minimize its legal and financial risk:
• Obtain adequate insurance coverage.
If an employee gets into an accident while driving a car that is owned by the company, it will be the company’s auto insurance to respond first. It is imperative that your company has enough automobile insurance to adequately protect the business. A knowledgeable commercial insurance agent can advise you.
• Check the driving records of the employees who drive for business, whether in their own car or a company-owned vehicle.
Take precautions relative to who is permitted to drive a company-owned vehicle, or who is permitted to use their personal vehicle for company business. If an employee who does not hold a valid driver’s license is permitted use of an employer’s vehicle, or is instructed to drive their own vehicle for company business, the company could be held liable for any accident or damage the employee may cause in that vehicle. It’s important to have an updated company vehicle policy wherein employees are required to inform you if they have a driving infraction that may affect their insurability or ability to drive. You, as the employer, may also need to periodically check the employee’s motor vehicle record in accordance with applicable background check laws.
• Understand the tax implications if employees are permitted to use a company-owned vehicle for personal reasons.
An employee who is permitted use of the ‘company truck’ on weekends is likely incurring additional taxable income. It is up to the employer to then report such use as additional wages to the employee, using one of several methods for calculation approved by the IRS. If your company allows such personal use of a company vehicle, you should consult your tax advisor to make sure income is allocated appropriately to the employee.
• Keep the correct records for all company cars.
If you plan to claim expenses related to the company car as business expense deductions, you must have the appropriate documentation regarding the car’s actual business use and expenses incurred. This also applies if your company reimburses an employee for mileage, or other costs, associated with the use of their own car for the business. Without the proper records, such reimbursement could be considered additional wages to an employee instead of a reimbursable expense, if ever audited.
• Have a written policy outlining the proper use of a company car and reimbursement of expenses when driving a personal car for work.
Such a policy lays the foundation for expectations you, as the employer, have regarding an employee’s use of the car, e.g. a common violation would be texting while driving. If an employee is operating the vehicle in violation of company policy, such a policy would lay the framework for his/her discipline and possible termination. In addition, companies that employ delivery drivers need to be extra vigilant that they are reimbursing a driver’s expenses adequately in order to make certain the driver is not inadvertently being paid below minimum wage.
These are just a few of the many issues an employer must take into consideration when operating a business that owns a company vehicle or reimburses employees for the use of their own.
Please do not hesitate to contact one of our attorney at Carlile Patchen & Murphy in the Labor & Employment Practice Group
if you have any questions.