# How to Calculate Car Allowance

Geber86/E+/GettyImages
Share It

According to a World at Work survey conducted in 2008, 75 percent of businesses surveyed offered some type of vehicle-related benefits to its employees. One common type of benefit is a car allowance. Car allowance programs offer employees a specific amount of money each month to use toward vehicle-related expenses. In order to offer a car allowance to employees, a company must calculate approximate expenses related to owning and operating a vehicle for transportation to a particular job.

Determine the approximate monthly payment for a standard vehicle. According to MSN Money, the average car payment in the United States is \$479/month. This figure is for a loan of \$24,864 for a new car. A company may decide to allow more or less for a monthly payment, depending on the type of car that the business expects its employees to purchase.

Figure in monthly insurance costs. You can research average auto insurance rates by state at the Insurance Information Institute's website. Divide the yearly cost by 12 to determine a monthly rate.

Determine approximate fuel costs and mileage. Assume the following factors as an example: Your employees live an average of 10 miles from work, the price of fuel in your area is \$2.50 per gallon, and the average miles per gallon of a vehicle is 20. If an employee travels to work and back five days each week, that's a total of 40 trips a month. Multiply 40 trips times 10 miles to get 400 miles. Divide 400 by 20 miles per gallon to get 20 gallons of gas. Multiply 20 gallons by \$2.50 per gallon to get a cost of \$50 a month in fuel. You may have to add extra money if employees must drive their vehicles for other business-related activities.

Figure in maintenance and repair costs. If you expect employees to spend an average of \$1200 each year on repairs and maintenance, divided this figure by 12 to get a monthly cost of \$100.

Add the figures from steps one through four to calculate a monthly car allowance.