If your organization operates a fleet of company vehicles, now is a good time to evaluate the tools you use to support this program. By adopting the right tools you can reduce your organization's risk and operating costs.
Two Simple Ways to Reduce Company Vehicle Costs
Two perennial contributors to fleet expenses are personal use and inaccurate mileage reports. It can be very difficult to distinguish between business use and personal use of the vehicle, and that is part of what makes a company car such a valuable perk to employees. It can also be easy to under-report mileage when it comes to personal use.
Both of these sources of non-business costs can be alleviated with the right tools. First, you need to evaluate your organization's current personal use policies. Then you need to review your methods of mileage capture and reporting and choose the right tool for the job.
Personal use of a company car and IRS rules
When was the last time your organization updated its personal use and chargeback policies? If it has been awhile, this policy could be costing your organization in hidden ways or be contributing to future problems.
The IRS treats personal use of a company vehicle as a non-cash fringe benefit and therefore subject to taxation. If your organization does not operate an effective personal use policy, then you could face problems in the event of an IRS audit. Failure to determine business use versus personal use will result in 100% tax liability to the employee.
To avoid tax liability, it is important to strictly enforce limits on personal use and charge back employees for personal use of the vehicle. Adopting and operating a more effective personal use policy will help compliance with the IRS and reduce overall fleet costs.
Challenges of effective personal use policies
There are two fundamental challenges to managing a personal use policy for company vehicles:
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Outdated personal use policy for company fleet
It’s not unlikely that your policy was designed for a different era. Perhaps at the time your policy was first introduced, providing employees with company cars was simpler because costs were relatively minimal and could be more easily controlled. The current business environment presents a more complicated situation.
The prices of vehicles have skyrocketed, increasing the value of a company vehicle to an employee as well as the tax burden for personal use. Insurance costs have risen as well. High gas prices can also increase the likelihood of non-business use of company cars.
These developments make it likely that your organization is subsidizing at least some personal use costs. The IRS provides organizations with different methods for determining the value of personal use of a company vehicle. No matter what personal-use chargeback method you choose, it will rely on accurate reporting of business and personal mileage. Any under-reported mileage will to cost you.
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Ineffective fleet management tools
Historically, employees reported vehicle use on a mileage log, operating on the honor system. Whether reporting mileage on paper or entering it into fleet software, the process relies entirely on accurate reporting. However, employees often reduced the amount of recorded personal mileage in order to reduce their costs and the time it took them to manage the mileage log.
Outdated systems like spreadsheets have been replaced by mobile mileage tracking systems. Today's more advanced tools save the employee time while curbing the inaccurate reporting of mileage amounts. It is worth it to review mileage capture options regularly and update your fleet management tools.
Two advanced tools for company car chargebacks
There are two vehicle tracking tools that many organizations have now adopted for fleet management: telematics and GPS mileage trackers. Let's look at the relative advantages of each.
Tool 1: Telematics for tracking company vehicles
Advanced software solutions like telematics can be appropriate for certain organizations. For many organizations, telematics software can risk overcomplicating a simple problem. These tools produce reams of data that go beyond simple mileage, such as driving speeds, braking habits, and cornering tendencies.
Capturing this information can be helpful for delivery drivers, service vehicles, big trucks with valuable cargo, and possible high-risk drivers. However, this tool is total overkill for a sales rep or light service rep driving a company vehicle for both work and personal purposes.
Tool 2: GPS mileage tracking for company vehicles
GPS mileage tracking systems provide an alternative means to measure mileage, but they can violate privacy and are prone to human error. Companies must be cautious they don’t gain access to information that reveals employees’ activities outside of work, such as personal medical appointments or political and religious associations.
When exploring the dozens of mileage trackers for mobile devices available in the iOS app store and in the Google Play store, it is important to make sure that the app not only provides a streamlined and intuitive user experience but that it also preserves a firm wall between a driver's real-time location and the employer's access to mileage information. (mBurse offers an array of privacy-protecting mileage tracking options on our Mileage Tracking Solutions page.)
Managing fleet costs without violating employee privacy
With the increased IRS audit focus on the misuse of fringe benefits, now is the time to automate the tedious administrative task that is mileage tracking. By updating your chargeback policy and adopting a better mileage capture tool, your organization can proactively eliminate excess costs and fraudulent activity.
If you want to tune up your personal use and chargeback policy without stripping out employee perks, or would be interested in hearing what alternatives we offer, call mBurse and ask about our fleet solutions today.
