Simone Lawson
Driving on company business can constitute commercial use, but it depends on the purpose of the drive and the type of vehicle used. Commercial use typically involves transporting tools, materials, or deliveries to a place of employment or a client site, while business use includes driving to client meetings, company errands, and commuting between offices. When employees use their own vehicles for company business, it is considered a non-owned auto exposure, which can put the company at risk for liability issues. To mitigate this risk, companies can implement policies for employees driving their vehicles on company business, including requiring personal insurance, obtaining MVR authorization, and establishing driver eligibility guidelines. Understanding the distinction between business and commercial use is crucial for proper insurance coverage and tax deductions.
| Characteristics | Values |
|---|---|
| Definition | Commercial use includes using a vehicle to transport tools and materials to a place of employment or site, or any type of delivery. |
| Examples | A contractor going to a site, a florist delivering floral arrangements, ride-sharing, or food delivery. |
| Insurance | Most commercial auto policies include coverage for non-owned autos on an “excess” basis, meaning that the employee’s insurance is “primary” and the business’ non-owned auto policy is “excess”. |
| Mileage reimbursement | Employers may reimburse employees for using their personal vehicles for work-related tasks, based on Internal Revenue Service standard mileage reimbursement rates. |
| Written permission | Employers can mandate that employees seek written authorization before using a personal vehicle for company business. |
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What You'll Learn
Non-owned auto insurance
In the insurance industry, "non-owned autos" have a specific definition and relevance for how coverage is applied. Non-owned autos are vehicles that a company does not own but that are used in connection with the business, such as employees' private vehicles.
Most commercial auto policies include coverage for non-owned autos on an "excess" basis. This means that the employee's insurance is "primary" (pays first) and the business' non-owned auto policy is "excess" (pays second). However, the employee's personal auto insurance might not apply if they were driving for work purposes. Therefore, it is important to have non-owned auto insurance to cover your liability in such cases.
Non-owner car insurance provides liability coverage for bodily injury and property damage, meaning that it will cover you if you're liable for damages or injuries in an accident. It does not, however, cover damage to the vehicle you're driving or your own injuries after an accident. Non-owner insurance policies tend to be less expensive than standard car insurance policies.
There are several ways to protect your company from non-owned auto exposure. Firstly, you can purchase a non-owned auto insurance policy. Secondly, you can create a program for employees that drive their own vehicles on company business. This could include requiring employees to carry personal insurance on their vehicles, obtaining proof of their insurance coverage annually, and establishing driver eligibility guidelines.
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Reimbursement and expenses
If you drive your personal vehicle for business purposes, you will be eligible for mileage reimbursement from your employer. While no federal laws require employers to reimburse employee mileage, state laws sometimes mandate reimbursement. This is the case in California, Massachusetts, and Illinois. Your employer may reimburse you at the standard IRS mileage rate, at FAVR (fixed and variable rate), or provide you with a fixed monthly mileage allowance. The standard mileage rate covers all fixed and variable costs of using your vehicle for business driving. It’s typically paid once you have provided a log of your business mileage.
FAVR consists of two separate payments, one for fixed and another for variable costs. A mileage allowance is typically paid upfront monthly, so you have cash on hand for your month’s business mileage expenses. To be reimbursed for your business driving, you must provide your employer with consistent mileage records. They should include information for every business trip, including the date, destination, purpose, and total mileage driven. Some employers might require more than this, so always check with your employer before you start keeping a mileage log.
The law requires that you substantiate your expenses with adequate records or sufficient evidence to support your statement. For further information on record-keeping, refer to Topic no. 305. If you are an Armed Forces reservist, a qualified performing artist, or a fee-basis state or local government official, complete Form 2106, Employee Business Expenses, to figure out the deductions for your car expenses. If you are self-employed, you can deduct business mileage expenses from your taxes, and employers who provide mileage reimbursements to employees can account for these as business expenses.
The 2025 mileage reimbursement rate for business-related driving is 70 cents per mile. The medical and moving mileage rate is 21 cents per mile, and the charity mileage rate is 14 cents per mile. The 2024 mileage reimbursement rate for business miles is 67 cents per mile, 21 cents for medical and moving miles, and 14 cents for miles in the service of charitable organizations.
If you use your vehicle for personal and business travel, you can only deduct the costs associated with its business use. You can generally figure out the amount of your deductible car expense by using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, you may want to figure out your deduction both ways before choosing a method to see which one gives you a larger deduction. To use the standard mileage rate, you must own or lease the car and not operate five or more cars at the same time. You must also not have claimed a depreciation deduction for the car using any method other than straight-line depreciation.
The actual expense method requires you to determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles. Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
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Employee driving records
Driving on company business can constitute commercial use, depending on the nature of the driving and the type of vehicle used. Commercial use typically involves using a vehicle to transport goods, tools, or people, such as in ride-sharing or delivery services. It is important to discuss vehicle use with an insurance broker to ensure proper coverage in the event of a claim.
Now, let's delve into employee driving records:
Screening and Monitoring:
Most employers require a Motor Vehicle Record (MVR) check before hiring candidates for driving roles. Annual MVR rechecks are also common to ensure employees maintain safe driving records. However, continuous MVR monitoring is ideal as it provides real-time notifications of new infractions, allowing employers to make immediate decisions to protect their organizations.
Benefits of Monitoring:
Monitoring employee driving records offers several advantages:
- Risk Reduction: Employers can identify and address unsafe driving behaviors, reducing the risk of accidents and associated financial and legal consequences.
- Improved Safety: Monitoring programs encourage safer driving habits, and drivers who know their records are being monitored tend to exhibit improved driving behavior.
- Compliance: For companies regulated by the Department of Transportation (DOT), regular driving record checks are mandatory to ensure DOT compliance.
- Informed Employment Decisions: With access to driving records, employers can make more informed decisions when hiring, promoting, or assigning tasks to employees who drive on the job.
Steps for Effective Monitoring:
To effectively monitor employee driving records:
- Notify Employees: Before obtaining driving records, employers must notify employees in writing and obtain their written authorization, as required by law.
- Regular Record Checks: Pull driving records at the time of hire and conduct annual reviews. Continuous monitoring is ideal for real-time updates on new infractions.
- Establish Guidelines: Set clear driver eligibility guidelines, outlining the types and number of violations or accidents that impact driving eligibility within the organization.
- Insurance Verification: Obtain proof of employees' personal insurance coverage annually, especially when they use their vehicles for work purposes, as this can impact liability in the event of an accident.
- Compliance: Ensure DOT compliance by following FMCSA Guidance for 391.25, which mandates specific procedures for screening and monitoring employee driving records.
By implementing these measures, employers can enhance the safety of their employees and the public, reduce risks, and make more informed decisions regarding their mobile workforce.
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Commercial use classification
Commercial use of a vehicle includes using it to transport tools and materials to your place of employment or site, or any type of delivery. For example, a contractor going to a site or a florist delivering floral arrangements. In this case, the vehicle is being used for commercial purposes, and the appropriate commercial insurance coverage is required.
On the other hand, business use of a vehicle is often related to commuting to and from work or using it in pursuit of your occupation or profession. For instance, driving to client meetings or transporting goods. While this may not fall under commercial use, it is still important to inform your insurance company of any material changes in risk, such as an increase in mileage or using your vehicle for business purposes, to ensure proper coverage in the event of a claim.
When employees use their own vehicles for company business, it is considered a "non-owned auto" exposure for the company. In such cases, the employee's insurance is primary, and the company's non-owned auto policy is secondary. To manage liability risks, employers can require written permission from employees before using their personal vehicles for company business and ensure they have valid auto insurance with commercial use coverage.
Additionally, employers may add employees as additional insureds on the company policy for a small premium to ensure coverage if an employee's personal insurance is inadequate. It is important to note that most business policies do not cover damage to an employee's vehicle, and specific laws and requirements may vary by state. For example, in California, the 'required vehicle' exception mitigates employer liability for work-related injuries.
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Employer liability
An employer can be held legally responsible for an employee's negligence, including negligently driving a company or personal vehicle. This is known as "respondeat superior" in legal terms, which means "let the superior answer". The employer is not blamed for their own negligence in such cases, but they must answer for their employee's careless driving.
To reduce liability from negligent lending suits, employers can:
- Obtain adequate insurance on all vehicles.
- Ask insurance agents about vehicle safety programs.
- Ensure that employees who use company vehicles have all the required licenses and permits.
- Keep documentation separate from other personnel records.
If an employee uses their own vehicle for company business, this is considered a "non-owned auto" exposure, which puts the company at risk for non-owned auto liability. Most commercial auto policies include coverage for non-owned autos on an "excess" basis, meaning the employee's insurance pays first, and the company's non-owned auto policy pays second.
To protect the company from non-owned auto exposure, it is recommended to:
- Develop a system to identify employees who drive their own vehicles for company business.
- Require employees to carry personal insurance on their vehicles, with a recommended minimum liability of $500,000.
- Obtain proof of employees' personal insurance coverage annually.
- Ask employees to sign MVR authorization forms to allow the company to access their Motor Vehicle Records.
- Run Motor Vehicle Records annually or sign up for an employer notification program if available in the state.
- Establish driver eligibility guidelines stating the violations or accidents that disqualify employees from driving eligibility.
Furthermore, employers can be held liable for negligent entrustment, which occurs when they negligently provide an employee with a dangerous instrumentality, and the employee causes injury to a third party with that instrumentality. For example, if a company hires a salesperson with a poor driving record who causes an accident, the company could be held liable for punitive damages due to gross negligence.
Employers should also be aware of distracted driving, which includes the use of cell phones, GPS systems, and radios, among other distractions that may divert an employee's attention from the road. Implementing a vehicle use program that includes a signed consent form outlining acceptable practices for driving on company business can help mitigate these risks.
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Frequently asked questions
Driving on company business can constitute commercial use, but it depends on the context. Commercial use typically involves using your vehicle to transport tools and materials to a work site or for deliveries. However, driving for client meetings or commuting to and from work is generally considered business use.
It is important to discuss vehicle usage with your insurance broker to ensure proper coverage in the event of a claim. Failing to disclose commercial use may result in your insurance company denying a claim. Most personal insurance policies exclude 'for hire' use, so employers should confirm that employees have valid commercial auto insurance when driving for work purposes.
Employers can limit the number of employees required to use their personal vehicles and mandate written authorization for added precaution. They can also add employees as additional insureds on the company policy and establish clear vehicle use policies, including reimbursement procedures and mileage rates.
