Private use of a company car – When companies must pay the value in cash

Employers may provide part of an employee’s salary in the form of a benefit in kind, such as a company car for private use. However, the value of this benefit in kind must not exceed the attachable portion of the salary. If it does, the company car agreement is invalid in its entirety for the month in question. The employee may then claim the full value of the private use – one per cent of the list price at the time of first registration – in cash.

Facts of the case

The employee drove a company car which he was also permitted to use privately. His gross salary ranged between €3,850 and 4,285; the monetary benefit of the car was set at €445 per month. He is married and has two children. Upon reviewing his accounts, he discovered that in almost every month, the value of the company car’s private use (1 per cent of the gross list price) exceeded the attachable portion of his income. He brought a claim for the difference. 

The decision

Section 107(2), fifth sentence, of the Trade Regulation Act protects employees: a minimum amount of the salary must always be paid in cash; the net amount (in cash) available to the employee must not be eroded by benefits in kind. This minimum amount is the non-attachable portion of the salary – that is, the amount which even a creditor is not permitted to take away in the event of a wage attachment. Only the portion above this, which is attachable, may be provided as a benefit in kind.

The amount of the attachable portion depends, amongst other things, on maintenance obligations. The employee’s wife was not taken into account as a person entitled to maintenance, as she had her own income. As both parents are equally entitled to maintenance for their children, only a portion of the maintenance entitlement was taken into account for the two children in this case.

A company car cannot be split – it can only be used in full or not at all. Therefore, the agreement is completely invalid in those months in which the value of private use exceeds the attachable portion. The consequence is that the employer must pay the full amount of €445 in cash – not just the difference, as the lower court had assumed. 

Consequences for practice

The problem does not only apply to cases of actual wage attachment: the value of private use must never exceed the attachable portion of the salary. Particularly for employees on relatively low salaries with multiple maintenance obligations, a (higher-value) company car can therefore lead to additional payments.

Example:

An employee earns €4,000 gross, drives a company car with a list price of €45,000 (€450 in benefits in kind) and has a non-working spouse and one child. His attachable income is approximately €240 per month. Consequence: The agreement on benefits in kind is void month after month, and he can claim an additional €450 net each month. 

Practical tip

Companies should check every month whether the value of private use of the company car exceeds the attachable portion of the salary. If this is the case, the full value (usually one per cent of the list price at the time of first registration) must be paid out in cash.

We would like to thank our colleague Stephanie Kluge, LL.B., Business Lawyer, for co-authoring this article.