What should you include in a company car policy?
No legal requirement
Company cars can be an effective way of remunerating employees, and in some roles providing a car may be necessary for the job duties. However, there’s no requirement under s.1 Employment Rights Act 1996 to include any terms and conditions relating to company cars. That said, it’s advisable to include specific provisions if you do provide any of your staff with a company car.
Drafting tips
Whilst you can just have a clause in the employment contract, it’s preferable to also have a more detailed policy setting out the employee’s responsibilities for the car and your rules governing the use of it. When drafting a cars and car allowances policy (see Follow up ), cover the following points:
- that supply of the car is subject to the employee holding a current full driving licence
Pro advice. To allow greater flexibility, don’t set out the exact make and model of the car to be provided.
- whether the car is for business use only, or whether the employee is permitted to also use it for private purposes (if private use is permitted, they will be entitled to continue to use it during maternity, adoption, paternity or shared parental leave, as well as when they’re off sick)
- whether the employee’s spouse/partner or adult family members can also drive the car
- who will bear the reasonable running costs of the car, such as MOT, road tax, insurance, maintenance, repair and fuel costs - it’s usual for you to bear these costs, except for fuel for personal use.
Pro advice 1. Where repairs are needed due to the employee’s negligence or wilful default, include a provision that they will pay for those repairs.
Pro advice 2. You can require that the employee takes responsibility for ensuring that the car has a valid MOT certificate/road tax cover and is properly serviced and kept in a roadworthy condition (and you could then reimburse them for approved expenses).
- what your rules are governing the employee’s use of the car, including observation of road traffic laws, whether it can be taken abroad, payment of fines or traffic offences and the notification of accidents involving the car
- when you can ask for the car back and what the arrangements are for its return, e.g. on termination of employment or if they’re disqualified from driving.
Car allowance
As an alternative to a company car, you could provide the option of an annual car allowance. This is normally paid at the same time as salary. The employee would then use their own car for work purposes and you would normally additionally reimburse them their fuel costs for business miles. Where employees do use their own cars for work, also put in place a driving whilst on company-related business policy (see Follow up ).
Pro advice. If you offer a car allowance, make clear that it’s not part of basic salary and isn’t pensionable.
Cars and car allowances policy
Driving whilst on company-related business policy
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