February 15, 2016
PERSONAL USE POLICY ADOPTION INCREASING
The use of a personal use policy is not new to fleet operators. In fact, its use continues to grow in popularity as a cost reduction and taxable benefit mitigation measure. CAF spoke with fleet management company (FMC) representatives to gauge how their customers are using this policy tool.
When a company vehicle is taken home at the end of a workday, the personal use calculation begins. As more fleets look to reduce costs, personal use policy implementation plays an increasingly important role in meeting that objective.
“The utilization of personal use policies have become more common place within the fleet arena as companies are maximizing their efforts to reduce overall operating expenditures while providing their employees the additional perk of leveraging a company provided vehicle for personal use. Personal use of a company provided vehicle definitions are pretty straightforward, any non-work related activity involving the use of the vehicle would be deemed a “personal use,” said Mark P. Donahue Jr., Manager, Fleet Analytics & Corporate Communications, EMKAY Inc.
While the management of personal use can be relatively straightforward, how it is implemented And which type of personal use fee is used can be the devils in the detail.
Peter Nogalo, Marketing Manager, ARI, outlines personal use fee options available and the pros and cons of each. “Methods that can be used to determine a flat fee include applying an industry average or a fee in line with what the company’s competition charges. The pro is that one fee applied to all drivers offers easy administration. The cons are all employees pay the same amount, and some may feel that management or senior staff should contribute more for luxury vehicles. Also, using an industry or competitor average may be ineffective if the amount is lower than the company’s personal operating costs.
“Another method would include charging a different flat rate for different vehicle classes. One example is sedan is $50 flat fee, minivan is $75 and SUV is $100.
“A more equitable method and ARI’s best practice, is to have the recovery fee offset expenses related to personal use of the vehicle. A fleet manager can determine this by calculating personal distance travelled as a percentage of total distance travelled and applying that percentage to the total operating cost. The contribution or chargeback amount would be determined by using the driver’s personal mileage in the previous year to calculate personal mileage or simply the percentage of personal usage,” said Nogalo.
“This method may also be used in conjunction with a flat fee. When used in this manner, it is often tiered. The cost per unit of distance is typically applied to the upper limit of the personal distance range. The main pro of this method is drivers may feel this method is more equitable as the charges are based on usage. The cons are: This method can be more difficult to govern as there is additional administrative work involved to keep track of the personal distance travelled and determine applicable fees. Also, drivers may understate their personal mileage in order to be assessed the lower tiered flat fee.”
An informal survey of North American companies conducted by GDV Fleet Solutions regarding personal use policy found, almost 70 per cent of companies with an owned/leased fleet assessed a personal use fee. Additionally, fees ranged from $50 to $135 per month with the average being $85 per month.
After deciding on which type of personal use fee is best suited for your company, it is important to come up with a policy regarding vehicle use outside of work hours.
Paul Wingate, Senior Consultant and Special Projects Manager and Ameed Shaheen, Strategic Business Consultant from Element Fleet Management examine the questions a company should consider when formulating a personal use policy.
“A number of individuals and functional departments including legal, HR and risk management should be engaged in fine-tuning any aspect of the fleet policy that touches on personal use.
1. Do we have a good understanding of government requirements; in other words, are there vehicles in our fleet that may be subject to a taxable benefit for personal use?
2. Do we allow company vehicles to be used for personal use?
3. If the company fleet policy allows for personal use, what parameters should be imposed? For example: In addition to the employee, who else (if anyone) is allowed to drive the vehicle, i.e. spousal equivalent, children (age restriction)? A best practice: conducting regular driver record checks for all eligible drivers. What is the policy for leaves of absence, short and long-term disability? What guidelines are provided for the payment of expenses related to travel (non- business) to the U.S. or vacation travel over predetermined mileage thresholds? Will we allow vehicle options not required for business “fit-for-purpose” (e.g. towing)? Should we include vehicles in the fleet selector that, while not necessarily required for business use, fulfill personal use needs or preferences of the employee?
4. If company fleet policy allows for personal use, should we implement a “personal use” charge?”
“Element’s fleet survey results illustrate, that the majority, up to 83 per cent, of fleets allow their drivers to use company-provided vehicles for personal use. In addition, fleets allow drivers And their spouses (52 per cent or 36 per cent for domestic partners) to use a company provided vehicle,” said Wingate.
Kelsey Phillips, Fleet Management Director, Driving Force suggests developing a check list of best practices similar to the one provided below when designing a personal use policy
Checklist of best practices:
• The values, liabilities and administration costs of vehicle personal use are studied and understood
• Policy is developed by the company, for the company
• Terms of acceptable and unacceptable use are clearly defined
• The policy is reviewed by the company’s legal, health and safety, human resource and insurance representatives to ensure it meets the company’s risk and employee-relation objectives
• The personal use policy should be regularly reviewed as to its propriety and effectiveness. Ultimately, is it up to each company to decide if it wants to institute a personal use policy for its fleet drivers. A variety of options exist as to the type and amount of fee to charge for the privilege of using a company vehicle for personal use. There is no one “right way” to design and implement a personal use policy. Regardless of which approach is taken and for some firms not having a personal use policy may be right for their culture and values, taking a measured and thoughtful approach and being armed with the facts is always a best practice.