In today’s business environment, for companies with employees, it is becoming an increasingly important question as to how to best motivate staff members and regarding compensation packages for employees.
The proper design of work incentives and a thought-out structure for the company’s compensation package are among the priority tasks of the modern-day manager. This is an important and effective tool in terms of boosting efficiency and productivity, increasing employee loyalty to the company, and also strengthening the company’s competitiveness on the labor market.
Apart from the main ways of motivating staff and the standard components of a compensation package, companies are increasingly providing employees with a service (company) car, which is required in order for the employee to perform his/her official duties. As additional motivation, the employer may permit the employee to use a company car not only to perform their respective tasks, but also for private purposes. In other words, the respective employee has the right to use the car not only for business purposes, but also as a means of transport for private purposes in the employee’s spare time.
In this case, the employer is faced with a number of questions in regards to how to document a financial bonus, as well as how to display it in the accounting records and in tax accounting. However, below in this article, we shall go into more detail on such theoretical questions as seen below:
- How should an employee’s use of the car be recorded, and how is liability for the vehicle provided for?
- How should the scope of the use of a company car for private purposes be limited, so that the company does not end up incurring additional losses.
First, is is necessary to assign the employee a vehicle by issuing the appropriate order, as well as completing the Certificate of the vehicles’ reception and transmission. This document is required in order to register all vehicle data such as the make, model, color, license plate number, year, and mileage at the time of the transfer, as well as the other date for transferring the vehicle to an employee.
From the moment that the vehicle has been transferred, liability (responsibility) for this vehicle lies with the employee. Thus, it is necessary to understand what type of liability would arise in this case. The concept of liability applies only to the employment relationship, and may only be used in the event of damage to a company employee either during or as a result of the unfair performance of their duties. In such a case, the employee may be subject to liability under current legislation. While the employee, with the employer’s knowledge and consent, uses a company car free time for personal reasons, there exists a different kind of responsibility – proprietary. To protect themselves from possible risks, the employer, with the assistance of a lawyer, needs to draw up and sign an agreement on property liability with the staff, which will be made personal passenger vehicles available for use.
In order that the rules and principles for using a company-provided vehicle are clear and transparent, and so that they do not give rise to any disputes or possible alternative interpretations, it is necessary to reinforce them by developing and approving relevant local company documentation (policy, procedure, instructions, etc.). Such documentation (hereinafter referred to as ‘policy’) must contain a description of all the nuances of the vehicle’s use, including how it may be used for personal purposes, as well as the possible limitations and additional conditions therein.
The most common issues requiring regulation in this situation are as follows:
- the terms and procedures for the payment of and reimbursement for fuel costs;
- monitoring a vehicle’s mileage;
- use of the car outside working hours;
- the terms and procedures for reporting on the use of the vehicle.
- The terms and procedures of payment and reimbursement for fuel costs. In practice, employers are mainly using one of the following methods in order to regulate this issue:
- The Policy prescribes the maximum amount of fuel or the financial amount for which an employee is permitted to purchase fuel for trips taken for personal purposes. How this works is that an employee acquires the fuel, and at the end of the reporting period, he submits the calculated documents in order to be reimbursed for such financial expenses. The person responsible for settling payments with employees (usually an accountant) calculates the appropriate amount of such compensation, but this shall not exceed the the limits provided in the Policy in any case.
- The employee is provided funds on a monthly (or quarterly) basis, as well as a certain fixed amount for fuel costs, including for personal trips.
The way in which employees are to be monitored will ultimately be decided by the employer, depending on the sphere of business activity, the number of employees, and other factors.
- Monitoring the vehicle’s mileage. In order to minimize the expenses an employer spends on vehicle maintenance and depreciation, and also to prevent employees from using a company car as a taxi, you must limit the number of kilometers that a staff member can travel for personal purposes during a certain period. Since only the limited amount of compensation for fuel expenses limits the use of cars for private purposes, it would be appropriate to introduce a system for periodically registering mileage. In other words, the employer shall record the vehicle’s mileage both at the beginning and end of the accounting period. Further, it is necessary to subtract the number of kilometers that have been traveled while performing work duties (according to waybills, reports and other documents) from the total mileage for the period – this will be the actual mileage on the vehicle that has accumulated in relation to staff members’ private travel.
The Policy also need to prescribe how employees will be reimbursed for the mileage the vehicle has traveled over a certain amount.
- The use of the vehicle during off-hours. In practice, if the company allows employees to use a vehicle for private purposes, this assumes that it will also be used on weekends and holidays. But for an employee to use the vehicle during a lengthy absence from work (for example, while on vacation) is not superfluous in order to reach an additional agreement with the employer. For instance, this can be done by the employee submitting his/her application with the appropriate request.
- The procedure for reporting on the use of the car. In order to provide an accurate and timely account of the use of a company car, employees must be promptly and fully accountable for all expenses, travel, etc. To this end, policies need to clearly stipulate deadlines, outline reporting procedures, as well as providing a list of documents and information that the employee must provide.
One your company has developed a clear and detailed policy regarding employees’ use of a company car, it will be much easier for the employer to monitor this issue, and fewer questions and misunderstandings will arise. Most importantly, correctly drawn-up internal regulatory documents are a valid management tool for an employer.
Author: Olga Nikulicheva