Who Pays the Insurance Excess on a Company Vehicle?

When an employee is involved in a motor vehicle accident while driving a company car, one of the most common questions that arises is: who pays the insurance excess? The answer depends on several factors — including company policy, employment contracts, and the circumstances of the accident.

Understanding the Insurance Excess

An insurance excess is the amount an insured party must pay towards a claim before the insurer covers the remaining costs. For example, if the excess is $1,000 and the repair bill is $5,000, the insured (in this case, usually the employer) pays the first $1,000, and the insurer covers the rest.

In the context of a company vehicle, the vehicle is typically insured under a commercial motor insurance policy held by the employer. However, disputes often arise when an employee is at fault in an accident — especially over whether the employee should contribute to the excess.

Employer Responsibility

In most cases, the employer is the policyholder and is therefore legally responsible for paying the insurance excess to the insurer. The insurance company deals directly with the employer, not the employee. This means the insurer cannot directly pursue the employee for the excess.

However, the employer may seek to recover the excess (or the cost of repairs, if not covered by insurance) from the employee under certain circumstances.

When an Employee May Be Required to Pay

Whether an employee has to pay the excess depends largely on the terms of their employment agreement or the company’s vehicle use policy. Common situations where an employer may require the employee to pay include:

• Negligence or Misconduct: If the employee caused the accident through careless, reckless, or deliberate behaviour — such as speeding, drink driving, or using a mobile phone — the employer may seek to recover the cost of the excess.
• Breach of Policy or Agreement: If the employee violated the company’s vehicle policy (for example, using the car for unauthorised personal use or allowing an unlicensed driver to operate it), the employer may be justified in charging the employee.
• Agreed Deduction Clause: Some employment contracts or vehicle policies include a clause stating that if the driver is at fault, the insurance excess can be deducted from their wages. This clause must comply with the Fair Work Act 2009 (Cth) and any relevant modern award or enterprise agreement.

Legal Considerations: Wage Deductions and Fair Work

Under the Fair Work Act, an employer cannot deduct money from an employee’s wages unless:

• The employee agrees in writing to the deduction; and
• The deduction is principally for the employee’s benefit; or
• The deduction is authorised by law, a court order, or an industrial instrument.

Therefore, if an employer intends to deduct the insurance excess from an employee’s pay, there must be a clear, written agreement that complies with the Act. Even then, it must be reasonable — for instance, the deduction should reflect genuine fault or negligence, not simply a minor mistake.

If there’s no such agreement, the employer may have to bear the cost.

Best Practices for Employers

To avoid disputes, employers should:

• Have a clear vehicle use policy outlining responsibilities, accident reporting procedures, and who pays the excess if the employee is at fault.
• Ensure the policy is communicated and signed by all employees who drive company vehicles.
• Review employment contracts to ensure any deduction clauses comply with Fair Work requirements.
• Assess each incident on a case-by-case basis — for example, distinguishing between genuine accidents and reckless conduct.

Best Practices for Employees

Employees should:

• Familiarise themselves with their company’s vehicle policy before using a company car.
• Report any accidents immediately and honestly.
• Ask for clarification about liability for insurance excesses in advance — especially if they regularly drive for work.
• Avoid using company vehicles for unauthorised personal activities.

Conclusion

The default position is that the employer, as the insured party, pays the insurance excess after an accident involving a company vehicle. However, if the employee was at fault and has agreed (in writing) to cover the excess under certain conditions — particularly if negligence or policy breaches occurred — the employer may lawfully seek reimbursement.

Clear communication, well-drafted policies, and compliance with Fair Work laws are essential to avoid costly misunderstandings and maintain trust between employers and employees.

Contact us at Safety for Life for advice and documentation relating to Employment Contracts and Vehicle Agreements. We’ve got it all sorted for you.