The Safety & Liability Perspective
With an employee-provided vehicle, how do you ensure it is properly maintained? How do you know the condition of the tires? What about the brakes? How do you know when an employee postpones a safety-related repair? If an accident is caused by deferred maintenance, what is your liability exposure if it occurred while conducting company business?
It is difficult, if not impossible, for a company to be aware of the condition and maintenance of every employee’s vehicle. In fact, a reimbursement program may actually contribute to poorly maintained employee-owned vehicles. For instance, if the reimbursement is not sufficient to cover actual expenses, the employee may defer preventive maintenance. Also, since maintenance is an out-of-pocket expense there may be a temptation (or financial necessity) to postpone more expensive mechanical repairs. The bottom line is that a business has little or no control over the condition of an employee’s personal vehicle.
If a vehicle is not provided by the company, the company must be certain the employee has sufficient insurance to protect it from liability exposure should an accident occur while the driver is on company time. It is difficult and time consuming for a company to confirm driver compliance with its insurance requirements. If a personal vehicle is used for work, an employee needs to carry "business" insurance, which is more expensive than personal insurance. Also, the increased miles driven annually, as a result of work, results in a higher premium.
Minimum liability coverage should be established if a personal vehicle is used for business. Also, an employee’s auto insurance should include sufficient uninsured/underinsured coverage, rental reimbursement, and towing. In addition, a company should require insurance be obtained from a financially solvent insurer. All of this involves administrative expense and corporate overhead to ensure that adequate insurance coverage has been purchased and that it is renewed each year.
By switching to a car allowance program, some companies believe they can dramatically minimize insurance exposure. These companies may avoid some cost of damage because the employee’s insurance is primary; however, they may still be sued for the liability exceeding the employee’s insurance coverage.
An employee may buy or lease a vehicle that is less safe than a typical company vehicle, which exposes the driver and the company to a higher risk in the case of an accident. Most fleets equip their vehicles with all available safety options. If employees provide their own vehicles, some may not have safety features such as side-impact airbags (or even passenger-side airbags on an older vehicle) or anti-lock brakes.
Difficulty Restricting Drivers
Under a reimbursement program, a company still needs to set up policies and guidelines governing the use of a personal vehicle to conduct company business. However, it is difficult to get employees to comply with company policy. A company should still monitor motor vehicle record (MVR) checks of employees using their personal vehicles. Unless you do so, how do you know if the employee representing your company is driving without a valid license or with a DUI conviction? To protect against this, companies need to update employee MVRs annually or semi-annually.
The inability to restrict who can drive a vehicle, such as spouses, children, and significant others is another problem. Some industries need to regulate who can drive a vehicle, such as pharmaceutical companies since some vehicles may be used to transport drug samples. When you consider an employee vehicle may be less safe than a company-provided vehicle and that it may have insufficient insurance coverage, along with the overhead expense to maintain an MVR program and to monitor insurance compliance, it is apparent that a driver reimbursement program decreases driver safety and increases corporate liability exposure.