Companies routinely pay the expenses of employees who use vehicles for company business, but the way this money is paid can mean the difference between employees who feel they are well compensated and those who feel they are spending their own money on car travel. A clear company policy on auto allowances can prevent misunderstandings.
When an Employee Receives a Car Allowance
Car allowances pay for all vehicle expenses, including gasoline, tires, repairs, parking, insurance and cleaning. Typically, this level of allowance goes to executives and salespeople whose jobs require frequent car travel. The allowance comes as a set dollar amount that is added to the paycheck, and the employee may use those dollars for car expenses. If expenses exceed the allowance, the employee pays the difference.
When an Employee Receives a Mileage Allowance
An employee who receives mileage reimbursement records the number of miles driven and turns in the report. The company pays a set amount per mile to reimburse the employee for company travel. This arrangement covers employees who do not travel routinely on company business but may run errands, deliver items or occasionally go to meetings that are away from the company premises.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.