What is a car lease policy? Explanation and use

What is a car lease regulation? It is the written regulation in which an employer sets out the conditions under which an employee receives and uses a company lease car: who is entitled to it, what lease budget applies, how the tax addition is processed, who pays for damage, deductibles, and fines, and when the car must be returned. The regulation exists alongside the employment contract and is linked to it by a brief reference in the contract. Without such a regulation, disputes arise precisely at the moments when you need them least: in the event of a collision, a tax assessment from the Tax Authorities, and at the end of employment.

The short answer

• What: a company policy regarding the terms of use of the company car.
• For whom: any employer who makes one or more lease cars available.
• Core: allocation, lease budget, private use, taxable benefit, damage, fines, return.
• Legal basis: employment contract plus a reference to the regulations.
• Please note: the right to recover damages from the employee is limited by Article 7:661 of the Dutch Civil Code.
• Form: in writing, signed, or demonstrably accepted by the employee.

What exactly is a car lease regulation?

You enter into a lease contract with the leasing company. It states what the leasing company provides and what it costs. What is not stated in it is your relationship to the employee behind the wheel. That is the function of the car lease regulations: it translates the obligations arising from the lease contract into the employment relationship.

The regulations are not a standalone document. They only take effect once the employment contract or the offer letter refers to them and the employee has received and accepted the regulations. Additionally, include a written amendment clause so that you can adjust the regulations later if rates, tax rules, or fleet policy change. Without such a clause, unilateral amendment is only possible in the event of a compelling interest, which is a high threshold.

Also be aware of the risk of an acquired right. Anyone who provides a car without reservation for years may see that car develop into a condition of employment that can no longer simply be withdrawn. A clear arrangement with a reservation prevents this.

Company car tax and the 500-kilometer limit

If the employer makes a car available that the employee is also permitted to use privately, this constitutes remuneration in kind. The employer processes the taxable benefit through the payroll administration. The taxable benefit is calculated on the list price including VAT and BPM. The standard percentage is 22 percent; for fully electric cars, a lower percentage applied to a portion of the list price for a number of years. That discount scheme has been phased out over the years, so check the percentage applicable in the current year with the Tax and Customs Administration before mentioning it in your regulations.

The taxable benefit is waived if the employee drives no more than 500 kilometers privately on a calendar year basis. Four points that go wrong in practice:

• It is an annual limit, not a monthly one. If the employee drives 501 private kilometers in the year, the taxable benefit is due for the entire year, not just on the excess.
• If the car is available for only part of the year, the 500-kilometer limit is recalculated proportionally to the time.
• Commuting counts as business use for payroll tax purposes. The situation is different for VAT: there, commuting is considered private use.
• The burden of proof lies with the driver. He must demonstrate with a conclusive trip log that he stays below the limit.

If an employee wishes to avoid the taxable benefit, they must apply for the Declaration of No Private Use of a Car from the Tax and Customs Administration themselves. In this case, the employer is not required to apply the taxable benefit. If it subsequently turns out that more than 500 private kilometers were driven, the Tax and Customs Administration will, in principle, impose the additional assessment and the fine on the employee. If the employer knew that the declaration was incorrect, the additional assessment may still be levied against the employer. Therefore, stipulate in the regulations the requirements for the mileage log and that the employee must provide it upon request.

Damage, deductible and traffic fines

The employer is the contracting party with the leasing company. Therefore, damage and the deductible initially fall to the employer. The question is whether he can pass this on to the employee, and there is a hard limit to that.

Article 7:661 of the Dutch Civil Code stipulates that an employee who causes damage in the performance of his work is not liable to the employer for that damage, unless the damage is the result of his intent or conscious recklessness. That is a strict standard: inattention, a misjudgment, or an error in traffic generally do not meet it. This general rule may only be deviated from in writing, and even then only insofar as the employee is insured for that damage. A regulation that simply shifts the full liability for damage onto the driver therefore does not stand up in court.

What is common practice is charging a limited and pre-specified deductible per claim, agreed upon in writing and with an annual maximum. The higher the amount, the more critically a judge will scrutinize it. Additionally, explicitly regulate what happens in the event of damage outside working hours, use by a partner or a third party, and driving under the influence or without a valid driver's license. In those latter cases, intent or conscious recklessness is considerably more likely.

Traffic fines fall into a different category. For minor offenses that are settled administratively, the vehicle owner is liable. This is the leasing company, which passes on the fine to the employer as the contracting party. If the employer wishes to recover the fine from the employee, this must be stated in the regulations. For more serious offenses, the vehicle owner can provide the driver's details, after which the sanction is issued in the driver's name. Finally, bear in mind that offsetting against wages is not permitted without limit: the law sets limits on offsetting, and the net wage may not fall below the statutory minimum wage.

Return, illness and termination of employment

The termination of use is the most underestimated provision. Stipulate that the car, along with keys, fuel card, charging card, and paperwork, must be returned on the last working day, or earlier in the event of exemption from work. Also regulate the situation regarding long-term incapacity for work: many employers apply a period after which the car is repossessed, but this is only valid if it has been documented in writing beforehand. Furthermore, describe the condition of the vehicle upon return and the distinction between normal wear and tear and repair costs, as this is where most disputes arise upon repossession.

A brief real-life case. An installation company with eight delivery vans recovers the full damages of 4,200 euros from the technician following a collision. There were no regulations, only a verbal agreement. The technician successfully contested the deduction: there was no question of intent or conscious recklessness, and a written deviation from Article 7:661 of the Dutch Civil Code was lacking. With regulations providing for a deductible of 300 euros per incident, the company would have had a defensible position.

Honest recommendation

You don't need a lawyer for everything. You can perfectly well take stock of your fleet, determine lease budgets per job group, choose a leasing company, and draw up practical house rules regarding refueling, charging, maintenance, and cleaning yourself. If you have a single car used exclusively by the director-major shareholder, extensive regulations are unnecessary; a brief written agreement regarding private use and tax liability will suffice.

Ensure that personnel are monitored as soon as they are behind the wheel. The provisions regarding recovery of damages, deductibles, fines, the modification clause, and return of the vehicle upon illness or termination are the areas where things go wrong. These are precisely the clauses that fail if they are not formulated correctly, and the cost of a single failed recovery typically exceeds that of well-drafted regulations.

Read more: drafting car lease regulations and having car lease regulations drafted. For a custom document: car lease regulations.

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