An employer guide to company cars vs car allowance

With 55% of employers looking to retain staff in 2024, deciding on strategies to keep staff within the business is more important than ever. 

Over the years, many employers have provided cars to employees through staff benefits schemes. However, car allowances are becoming increasingly popular for companies looking to add a touch of personalisation to their workplace perks. 

Keep reading for a comprehensive employer guide on company cars vs car allowance, assessing the pros and cons of both.

Company car vs car allowance

A company car is a vehicle an employee uses for work which is leased or owned under the business name and provided by the employer. Company cars are often popular with businesses where employees are required to travel as part of their job. 

Car allowance is a scheme where the employee is provided with monetary benefits instead of a company-owned car. The allowance can be provided monthly, quarterly or yearly to help the employee purchase or lease their own vehicle or maintain one they already own. 

The allowance can be calculated using many factors including expected business mileage, average car maintenance and insurance costs and seniority of the employee.

Pros and cons of company cars

Company cars can be used as a key tactic to attract and retain talent. They can also be branded with company logos, slogans and web addresses to help promote the business when out and about.

However, providing company cars is a substantial investment, especially for small businesses. It also increases your liability as an employer; if your employees are involved in an accident, you will be responsible for the costs incurred including insurance premiums paid by the company. 

Alongside this, managing a fleet of company vehicles can be a time consuming administrative task to organise the provision, maintenance and insurance of each vehicle.

Pros and cons of car allowance

Car allowance can often be seen as a hassle-free, tax saving option. Car allowance is paid as part of the employee’s salary and therefore means the employee tax can be calculated as normal. You will also be liable for paying National Insurance contributions on the car allowance. 

However, employees may be subject to external factors, such as poor credit, that makes it difficult to choose a suitable vehicle. New employees may have also preferred a company car option in the past and therefore decline your job. 

Both company cars and car allowances are effective ways to attract and retain talent. The needs of the business must be weighed up to decide on the right strategy for you and your employees.