Though businesses across the country are reopening, many are still keeping their workers at home. For these organizations, it can seem reasonable to suspend vehicle reimbursement programs, such as a car allowance or the IRS mileage rate. But smart organizations will use this as an opportunity to make their business reimbursement program more effective.
3 reasons to continue vehicle reimbursements during remote work
If your organization pays a monthly car allowance, it might seem reasonable to suspend or reduce the allowance during this period of remote work. If your organization pays a mileage reimbursement like the IRS rate of 57.5 cents per mile, then you are probably saving a lot of money right now as employees working from home are recording little or no business mileage.
However, there are three bigger picture elements to weigh as you consider what steps to take going forward, especially if you do not foresee an immediate resumption of vehicle travel for work purposes.
1. Employees must maintain a vehicle for future business use
By expecting employees to maintain a personal vehicle that can be used at short notice to carry out job responsibilities, some reimbursement of that expense is appropriate. Not all vehicle costs derive from travel itself. Car insurance, depreciation, registration/license fees, taxes, and routine maintenance costs will continue to accrue even when a vehicle is not being driven much.
An employee receiving a mileage reimbursement is not being reimbursed for any of these costs if that employee is working from home. Yet, that employee must remain ready to resume vehicle travel for the company if management decides it is time to put employees back on the road.
Under these conditions, a fixed monthly car allowance makes better sense, though you can make a reasonable case for reducing the monthly amount to account for the decrease in travel expenses such as gas and oil consumption. However, under normal driving conditions, fixed car allowances are notorious for inadequately reimbursing employees due to taxation and inflexibility. Plus, no business wants to switch back and forth between different reimbursement approaches as conditions change.
2. Responsiveness to change requires flexible business reimbursements
In the coming months as virus outbreaks and stay-at-home orders come and go, businesses will want to maintain maximum flexibility to respond to conditions that are advantageous to vehicle travel.
Right now is a great time to evaluate your vehicle reimbursement program to find ways to make it more flexible without requiring extra time from management. You don't want to have to keep changing the reimbursement approach based on whether employees are working entirely from home, partly from home, or entirely on the road. Instead, you want a flexible reimbursement approach that allows the organization to stay limber in response to changing conditions.
Every business challenge is an opportunity to find a new avenue toward competitiveness, growth, or cost-effectiveness. How might re-thinking your car allowance or mileage reimbursement bring new opportunities?
3. Scalability is crucial for employee business reimbursements
In the long run, scalability is important as you stay responsive to business opportunities during the uncertain times ahead. Whether your business grows, shrinks, or shifts in focus, you want to be able to address employees' business expenses fairly and cost-effectively.
A reimbursement approach that works well with five employees might not work as well with 25. A reimbursement approach that works well with 25 might not work with 500.
While the coronavirus pandemic and its associated shut-downs is keeping many people focused on the present, visionaries are looking ahead to the future already and trying to find the opportunities that will present themselves. When the time comes to seize these opportunities, you want to make sure that your business vehicle reimbursement program does not get in the way. Right now is the time to evaluate its strengths and weaknesses and make any changes that will increase scalability.
Reimbursing employees working from home today but from a vehicle tomorrow
Under the current circumstances, you want a business vehicle policy that can defray the costs of vehicle ownership while able to reimburse the costs of travel once an employee returns to the road, whether in a limited capacity or a full one.
The best approach to accomplish this is called fixed and variable rate reimbursement, or FAVR. Using geographical cost data, the program administrator customizes a car reimbursement for each employee that always covers their fixed costs of ownership but additionally rises and falls as they drive a lot or a little.
This non-taxable plan is the most flexible, scalable, and equitable reimbursement approach available. Now is a good time to explore FAVR to see if it might set up your organization to respond quickly to the challenges and opportunities of these uncertain times.