Company car 2.0: Electric or hybrid company cars or perhaps a mobility budget?

Many employers are taking advantage of the ongoing development of electric and hybrid vehicles to break new ground when it comes to company cars. Employers can make a visible contribution to reducing emissions and simultaneously retain and attract climate-conscious employees.

We explain below the labour law framework conditions to be observed by employers when introducing electric and hybrid company cars and which special tax law features apply.

Implementation of labour law in the company car regulations

If an employee is also allowed to use a company car for private purposes, this needs to be regulated individually between the employer and the employee. This can be agreed either in the employment contract or in a contract on the provision of a company car. Employers that provide numerous employees with a company car often regulate the concrete modalities in a separate company car policy and make reference to the policy in the company car contract or in the employment contract in case of employees who are entitled to such car. In the event of subsequent amendments to a company car policy that has been unilaterally issued by the employer, please note that any reservation of amendment rights in the employment contract is generally invalid pursuant to Section 308 No. 4 German Civil Code [Bürgerliches Gesetzbuch - BGB]. Accordingly, the applicability of the new (amended) company car policy should always be agreed anew in writing with existing employees.

Need for adaptation in case of electric or hybrid company cars

If an employer decides to offer employees electric or hybrid vehicles as company cars as an alternative, they should first adapt any existing company car policy accordingly. Employers and employees can then adapt existing individual agreements or conclude new ones on this basis. The legal framework is therefore the same, regardless of the type of company car. Nevertheless, a large number of new issues need to be regulated in the company car policy if electric or hybrid vehicles are to be provided. Such an issue, among others, is whether employers install charging stations at their businesses, make these available through third-party providers or provide employees with a charging station, a so-called wallbox, at their place of residence.

Charging stations at work or at home?

If the employer installs charging stations at its business, the extent to which individual employees may use them requires clarification. If the business has a works council, this triggers the work council’s right of co-determination pursuant to Section 87 (1) No. 1 German Shop Constitution Act [Betriebsverfassungsgesetz - BetrVG]. In addition, if the private use of the electric or hybrid company car is permitted and a charging station is provided free of charge at the business, this may affect the right of co-determination under Section 87 (1) No. 10 BetrVG, with the result that an agreement will have to be reached with the works council on the distribution criteria. Any existing parking policy will also need to be adapted.

If the employer provides its employees with charging stations, so-called wallboxes, at their residences, issues such as, for example, who bears the costs for the installation, maintenance and charging electricity, and whether other persons living in the employee's household may also use them, have to be regulated. The advantage of the wallbox for employees is that they can use it for charging at home at any time. This, in turn, is likely to increase the rate of usage of hybrid vehicles and provides an incentive for employees to opt for a hybrid company car. On the other hand, employer-financed charging of an electric vehicle outside the company premises, e.g. at the home wallbox, is currently not tax-privileged in the same way as the free or reduced-price charging of electric company or private cars at a fixed charging facility at the business (Section 3 No. 46 German Income Tax Act [Einkommensteuergesetz - EStG].

If an employee is provided with a hybrid vehicle, the question that needs answering in company practice is whether the employer can oblige the employee to undertake to use electricity. This is becoming an increasing problem: employees order hybrid vehicles because of the tax advantages, but do not charge them. This contradicts the very purpose of a hybrid vehicle and the underlying idea of the "green fleet". In this context, one could consider an obligation to give priority to the use of electricity, to the extent such an obligation is possible. However, it will hardly be possible to check compliance with such a regulation, since hybrid vehicles usually have only a short range, which depends strongly on the speed driven.

Tax incentives and distribution of charging costs

As in all company car policies, for electric or hybrid company cars it is also advisable to include a basic regulation on cost sharing by the employee via income tax law and the respective wage tax guidelines if the employee is allowed to use the company car privately as a non-cash benefit. This is where the employer can create an added value for employees.

The employee's private-usage benefit can be assessed at 0.5% of the domestic gross list price for electric and hybrid company cars if, for example, the CO2 value does not exceed 50 g/km. This means, in the employee’s favour, that the imputable income is significantly lower than in the case of a company car with a combustion engine (private-usage benefit): 1% of the domestic gross list price).

Employers can create another important incentive by regulating the payment of the electricity costs for the electric or hybrid company car for their employees. Here, it is advisable - in order to avoid frequent individual receipts by the employee - to agree on a monthly tax-free flat-rate reimbursement of expenses by the employer in the company car policy. For the employer, the flat rate has the advantage of having the effect of a final settlement, in that an additional reimbursement of expenses by the employer in the amount of the actual costs proven by the employee can generally be excluded. In addition, in purely factual terms this may also increase the motivation to use electricity.

According to a letter from the German Federal Ministry of Finance [Bundesfinanzministerium - BMF] dated 29 September 2020, the amount of the monthly flat rate depends on the location of the charging station. If the employer installs additional charging facilities at its business, the monthly tax-free flat rate to be reimbursed to the employee for electric and hybrid vehicles is correspondingly lower than if no charging facilities are available at the employer's premises. At this point, the term "additional charging facility" is decisive for the correct implementation. This encompasses, for example, suitable power connections at fixed business facilities as well as electricity charging cards provided free of charge or at a reduced price. If such flat rates are not agreed, the electricity costs for electric and hybrid service vehicles can be billed via a charging chip.

Environmental bonus or innovation premium for electrically powered vehicles

Further benefits for employers and employees arise from the Guidelines of the German Federal Ministry for Economic Affairs and Energy [Bundesministerium für Wirtschaft und Energie - BMWi] on the Promotion of Sales of Electrically Powered Vehicles of 21 October 2010 (BAnz AT 5 November 2020 B1, see Guideline). This funding guideline provides for an environmental bonus for the purchase and leasing of an electric or hybrid car. Half of the environmental bonus is financed by the car manufacturer and half by way of federal subsidy. This excludes new vehicles first registered after 3 June 2020 and up to 31 December 2021, and young used cars registered for the first time after 4 November 2019, registered for the second time after 3 June 2020 and up to 31 December 2021. The aforementioned vehicles will receive an innovation bonus, in which the federal share of the environmental bonus is doubled and the manufacturer's share remains unchanged. The federal share is paid out to the applicant by the Federal Office of Economics and Export Control [Bundesamt für Wirtschaft und Ausfuhrkontrolle - BAFA], upon application and under certain conditions.

Those eligible to apply for the environmental bonus are private individuals, companies, foundations, corporations and associations to whom a new vehicle is registered and who undertake to keep the vehicle for a certain minimum holding period. In case of employee leasing, the question of who is entitled to claim the environmental bonus depends on who is registered as the vehicle owner. Since this will regularly be the employer, it is the employer who is entitled to the subsidy. In practice, employers often pass the bonus on to their employees, e.g. to reduce the leasing rate. For clarification purposes, therefore, it is advisable to regulate in the company car policy whether the employer and/or the employee receive a share in the environmental bonus and, if so, which share.

Further federal funding programmes for the market development of electromobility

The Federal Government is also supporting the market development of electromobility with further funding programmes. The aim is to establish alternative technologies in the transport sector and make them more energy-efficient, climate-friendly and environmentally-friendly in order to drive forward energy turnaround in the transport sector.

Even after the Bundestag elections, the new coalition agreement will undoubtedly include electromobility among other things, so that the goals of the Paris Agreement and the Climate Action Plan 2050 can be achieved. A key component of the Climate Action Plan 2030 is: it is expected that, by the year 2030, seven to ten million electric vehicles will be registered in Germany. Building on these objectives and targets, the German Federal Ministry of Transport and Digital Infrastructure [Bundesministerium für Verkehr und digitale Infrastruktur - BMVI] has, among other things with the Electric Mobility Funding Guideline, also created a broad range of funding opportunities for the establishment of electric vehicle fleets in the commercial sector. These funding opportunities should be examined before converting the vehicle fleet.

Alternative or supplementary - the mobility budget

Instead of or in addition to providing a company car, employers can also grant their employees a mobility budget. The prerequisite for this is an individual contractual regulation or, if applicable, a collective bargaining agreement. The mobility budget is also implemented by the company in so-called "mobility guidelines".

With a mobility budget, employees can use different means of transport such as cars, local public transport, bicycles or scooters, depending on the distance to be covered.

The advantage for the employee is the great flexibility and easy handling. The mobility budget is made available in the agreed scope by a service provider, who directly carries out the monthly billing via a web portal or an app. Without losing sight of the present focus on electric and hybrid company cars, this is another opportunity for companies to retain employees while optimising and simultaneously displaying their own sustainability strategy.

Conclusion:

The increased interest of employers and employees in electric company cars thus opens up a wide range of implementation options. In order to ensure that the use of electric company cars provides all of the parties involved with an added value, clear labour law provisions initially have to be implemented in the company car policy. In addition, nationwide funding programmes should be examined in advance, to provide a basis for the decision-making, e.g. on where charging stations should ideally be set up. Once the labour law groundwork has been laid, the benefits to both employer and employee can be enormous.

Back to list

Isabel Hexel

Isabel Hexel

PartnerAttorneySpecialized Attorney for Employment Law

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 348
F +49 221 2091 333

Email