Do you offer your employees a company car? If so, do they use it just for the purpose of fulfilling their employment obligations? Or can they also use it for personal use? It is often cited as one of the most desirable perks for an employee. But is it really the right option for your business?

We’ve put together a simple guide, focusing on legal obligations. It also explores the advantages and disadvantages to you as a business. If you are looking for the tax implications of a company car scheme, please see our article by our partner LKA Chartered Accountants.

A company car is essentially where a car is leased or owned by the employer. It is used by the employee for either business or personal use. Although offering a car is an attractive incentive for employees, employers are responsible for complying with certain legal requirements. They need to think carefully before offering it as a reward.

If your business decides to offer this benefit, you should be aware of the following legal obligations: 

Safety and Duty of Care

All employers offering company cars (whether leased or owned by the company) owe a legal duty of care to their employees. This is to ensure that the cars supplied are safe and insured. Under the Health and Safety at Work Act 1974, employers must consider the health and safety of all employees. They must also consider any other individuals who may potentially be impacted by their activities ‘at work’.

This means that employers must safeguard any individuals who are using the car for the purpose of carrying out their duties. Furthermore, all employers are subject to the Corporate Manslaughter and Corporate Homicide Act 2007. Under this act, companies can be found guilty of corporate manslaughter as a result of gross negligence.

Failure to comply with these regulations will mean that your employees may make a claim against you for negligence. In extremely serious cases, there may also be a criminal sanction against you. You should always be prepared to ensure that the car you are providing is safe to drive and is insured.

Implement a company car policy

If you do offer cars to your employees, then you should have a tailored company car policy. This needs to be explained clearly. It should be signed by your employees to confirm that they have understood and agree to the terms and conditions.

It is also important for your business to conduct risk assessments where employees are using the car as part of their work responsibilities. Hire a company car policy expert to ensure that your business is complying with its obligations. Our team at Farringford Legal can assist you with drafting a tailored company car policy.

Carry out safety and administration checks

As employers owe a duty of care to their employees, it’s extremely crucial that you conduct thorough background checks to ensure safety. Your employees must be driving safely. One of the main tasks you must do is carrying out mandatory driving licence checks on all employees who are using a company car. You should even carry out third party checks to ensure that your employees are not being dishonest. Make sure they are not hiding any driving offences they may have committed.

The licences should be checked at least once a year, depending on the mileage driven. You are also responsible for undertaking administrative tasks, such as arranging and paying for MOT, tax disc, insurance, servicing, repairs, and maintenance. If the car is leased these features should be covered as part of the package and will be handled by the leasing company.

What are the advantages and disadvantages of a company car?

A car is often seen as a lucrative incentive. Offering employees their own car whilst working for the company could be seen as a way of improving retention and attracting new talent. They are fast becoming a standard element of any benefits package, especially where businesses are located out of town or out of reach of public transport.

Furthermore, having a company car could particularly attract employees with childcare responsibilities or those with disabilities. This is because it can help facilitate the commute between business and out-of-office appointments. For staff who do not have their own vehicles and rely on public transport (which is prone to be late and unreliable) to get to work, a company car can be a much more productive option. By choosing electric cars as well, it can reduce the carbon footprint of an organisation.

A company car scheme may appear to exceed the budget for many small businesses. However, there is an option to lease a company car which is a lot cheaper than owning a car. If a car is leased, there is also no need to be concerned about matters such as insurance, repairs, depreciation, and maintenance. These are managed by the leasing provider.

Liability

Although having a company car is desirable, it is a huge risk to take as you are liable for all the accidents when the company car is in use. In fact, a number of SME employers are unaware that they have a legal duty of care even if they operate just one company car. If an employee is injured whilst driving the company car, you will be liable.

Additionally, employers will be vicariously liable for your employee’s actions if they cause injury to someone within the scope of their employment even if the employer does not cause any injury. The other downside to offering a company car, is that it does not tie an employee to the company. If an employee chooses to leave and give up their company car, there is no penalty but there could be a cost implication to the company if it has to continue paying for the car through agreed lease arrangements.

Providing a company car is not the only way to help employees with transportation costs. Car allowances offer funds for employees to buy, lease or maintain their own car. They provide more choice over what they drive. Such allowances would avoid taking on any additional risk and ongoing maintenance expenses. They can be more easily clawed back should any employee leave. As with all benefits, there are pros and cons that need to be considered.