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A company car allowance is a predetermined sum paid to an employee as compensation for driving her own vehicle for business reasons. Companies use car allowances to minimize accounting costs. Once an employee has been allocated a car allowance, that amount is simply added to the employee's paycheck. For example, if the car allowance is $500 per month, this sum is paid to the employee via her paycheck.
From an employerâs perspective, a car allowance can produce a number of attractive benefits. A car allowance is often easier to manage than a company car as the business is not responsible for the vehicle.s the vehicle is not owned by the business, it is owned by the employee by choosing a car allowance the business is saving time and money by not having to go through the process of sourcing, maintaining and administering a fleet of company cars.