Hidden Company Car Expenses NZ Businesses Often Overlook

Offering company cars has always been seen as a valuable perk for employees. A company car’s value is often estimated to be anywhere between $15,000 to $23,000 per year – but where does that number come from, and what costs are hidden behind it?

If you’re a business owner or decision-maker, it’s worth looking at the true value (and cost) of offering company cars. While they can be a great asset for some businesses, the real costs might surprise you. This article will take you through some of the overlooked costs, and some alternative options that could be simpler, and even save your business money.

The Perceived Value of Company Cars

For employees, a company car can be a great perk; it gives them a sense of status, saves them from car bills, and even feels like a big financial bonus compared to what they’d pay out of pocket.

As one employee put it in a Reddit thread:

“A couple of things that are hard to put a monetary value on are: A) never having to spend one second worrying about the hassles of maintenance and insurance B) generally speaking, always getting to drive a ‘nice’-ish new car.” – sh33pshagga

Another said:

“I have a full-use company vehicle with virtually no restrictions. It’s currently valued at $16k in my remuneration package.”

While a company car can boost morale and help with employee retention, it also comes with real costs (see breakdown below), and businesses need to think carefully about whether it’s worth the investment.

Breaking Down the Real Costs

While the perceived value of a car can be between $15,000 and $23,000 a year, what’s the actual cost for businesses offering company cars?

• Cost of the car itself. Whether you’re leasing or buying, the type of car makes a big difference. High-end models or SUVs push the value higher, while smaller, economical cars keep it lower.
• Fuel costs. These can vary a lot depending on how much the employee drives, fuel prices, and whether the company provides a fuel card.
• Maintenance and repairs. Oil changes, tyre replacements, and unexpected fixes all add up over time, especially if the car is used a lot. Newer cars tend to need less maintenance, but as they get older, these costs often increase.
• Insurance and registration fees. Insurance costs depend on things like the car’s age, its type, and the coverage level. If the company chooses full coverage, it can add a fair amount to the yearly cost.
• Fringe Benefit Tax (FBT). This is a tax on company cars used for personal time, and it’s a hidden cost that varies based on the car’s value and how much personal use it gets.
• Depreciation. Cars lose value over time, and that “loss” is a cost the company absorbs if it plans to sell or trade the vehicle later.

Each of these factors shapes the real value of a company car, but the big question remains: does this estimated value actually match the real benefit for your business and employees?

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Potential Drawbacks for Businesses

• Extra admin. Managing company cars isn’t as simple as just buying or leasing them. There’s ongoing work to keep track of maintenance, handle repairs, renew registration, and manage insurance. Even with just a few cars, someone needs to stay on top of all the paperwork and make sure everything’s up to date, which can take time and effort that could be used on other areas of the business.
• Liability risks. When employees have company cars, especially if they’re allowed to use them personally, it adds liability. If there’s an accident, the company could face increased insurance premiums or even legal issues, especially if the accident happens off-hours.
• Tracking business vs. personal use. If employees are allowed personal use, keeping track of how much they’re driving for work versus personal time can be tricky. This tracking is important for tax reasons, and getting it wrong could lead to issues with compliance or unexpected tax costs. Tracking tools like GPS systems or logbooks can help, but they add to the cost.
• Fringe Benefit Tax (FBT). In New Zealand, if an employee can use a company car outside of work, the business needs to pay FBT for it, which can add a surprising amount to the overall cost. The more personal use allowed, the more the tax burden grows, and this can make the benefit a lot pricier than expected.

As you can see, company cars might not be worth it for every business. Smaller companies or those with limited admin staff might find the costs and admin work too much, and these can add up quickly.

Alternatives to Consider

If managing company cars isn’t the right move for your business, there are some simpler options that can still benefit your employees, while saving your business time and money.

• Fuel cards. Instead of covering a full vehicle, you can offer employees fuel cards. Employees get their fuel costs taken care of, but you skip the extra costs and responsibilities of owning or leasing a car.
• Car allowances. A monthly car allowance gives employees the freedom to use their own cars while getting some extra support for fuel or maintenance. They get flexibility, and you avoid the expenses and paperwork of maintaining a company vehicle.
• Ride-sharing or car-sharing programs. If your business is in a city, ride-sharing or car-sharing might be a good solution. Employees get access to transportation when they need it, but you’re only paying for the actual trips instead of maintaining a car that sits idle half the time.

Are fuel cards the best cost-saving option?

Fuel cards make it easy to see exactly where employees are spending on fuel, which is a big advantage over a simple car allowance or car-share program. Every time the card is used, you get a record of the transaction: where it happened, how much was spent, and what type of fuel was bought. This takes out the guesswork and gives you a clear picture of actual fuel costs, which can be a big help when managing budgets.

Unlike a car allowance, which is just a set amount given to employees for general car expenses, fuel cards are specific to fuel purchases and can often be set up to work only at certain stations or for certain types of fuel. This means employees can’t use the funds for non-work expenses, so every dollar spent is directly related to business travel.

Most fuel card programs also offer easy online tracking, where you can review spending patterns, spot any unusual purchases, and even set limits if needed. It’s an easy way to keep travel costs in check without the hassle of collecting receipts or wondering if an allowance is being used as intended.

Fuel cards give you transparency and control, making them a great tool for managing fleet expenses.

Making the Right Decision for Your Business

So, how do you decide if a company car is worth it? It comes down to weighing the true costs and benefits for your specific needs.

Think about how often the car would be used, whether it fits your budget, and if the hidden costs like FBT and depreciation still make it worthwhile.

Running a cost-benefit analysis can help clarify things — or better yet, use a tool to calculate the actual value based on your company’s situation.

Ready to Simplify Your Fleet Costs with Fuel Cards?

Fuel cards are a simple, valuable and cost-effective alternative to company cars, with way less admin work and a lot more control over expenses.

See if your business is eligible for a fuel card and find out if a fuel card could be the perfect fit for your business (or even a great addition to your current company car setup).

CHECK ELIGIBILITY HERE

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