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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.
Car allowances greatly increase expenses through tax waste, cost inequities, decreased employee efficiency, and more. Despite this, they remain one of the most popular forms of reimbursement. Donât make the same mistake that so many other mobile workforce managers have made: avoid flat car allowances like the plague. A simple mistake. Itâs easy to see why employers choose car allowances. Mobile employees must be reimbursed for all the expenses incurred while traveling for work. These expenses can include a wide array of items including fuel, registration fees, license fees, taxes, insurance premiums, vehicle repairs, vehicle depreciation, and more.