How to Calculate Car Allowance

by Charlotte Johnson; Updated September 26, 2017

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.

Step 1

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.

Step 2

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.

Step 3

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.

Step 4

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.

Step 5

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

About the Author

Charlotte Johnson is a musician, teacher and writer with a master's degree in education. She has contributed to a variety of websites, specializing in health, education, the arts, home and garden, animals and parenting.

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