Driving is large part of many jobs. For example, in outside sales, the sales representative drives around a territory from meeting to meeting. If an employee spends a large part of his work day driving, his employer may compensate him by giving him a car allowance or a mileage allowance.
A car allowance is designed to pay for a vehicle for the employee to drive, so that she does not have to use her personal vehicle for business use. She receives a pre-agreed upon amount each month and this amount is taxable, according to Doc Stoc HR Downloads. The amount the employee receives each month varies by company. According to a survey by World at Work, a global human resources association, the most common monthly car allowance amounts are £325, £485 and £650 ($500, $750 and $1,000).
A mileage allowance is designed to pay for fuel and depreciation on an employee's personal vehicle if the employee uses his personal vehicle for business use. A mileage allowance is a per mile rate that the company pays to the employee each month. The employee must track his driving throughout the month and add up his mileage at the end of the month. The employer usually places a limit, or cap, on how much money the employee may receive each month for mileage. Most companies set this cap at around £650. So, even if the employee drove 3,000 miles in a given month, he will only be reimbursed for the £650 cap, instead of £975.
The car allowance and the mileage allowance are designed to assist employees with driving-related expenses. Both allowances have set rates and upon employment, the employee usually signs a contract agreeing to the terms and conditions associated with these allowances. Both allowances are only granted to employees who have jobs that require a lot of driving during the work day.
The car allowance is used to pay for a car payment and is usually not used for any other purpose. According to World at Work, only 18 per cent of employers allow the employee to receive cash compensation instead of a car payment. The mileage allowance is paid as extra money on the employee's paycheck. Also, the mileage allowance is a per mile rate so, the amount of money the employee receives per month varies depending on how many miles she drives. The car allowance is the same each month, regardless to how many miles the employee drives. In addition, the car allowance is provided for the employee to pay for a business car to use for business use. The mileage allowance is provided for the employee to use her personal car for business use.