Paying the same car allowance or mileage rate to all mobile employees is like serving the same amount of food to the U.S. Olympic swim team as to the golf team. Most golfers won’t need much more caloric intake than the average person, but a swimmer—that’s a different story. They may need three or four times the amount of a golfer because of the extreme physical demands of their sport.
In the same way, different mobile employees working in different territories experience different levels of expense. An adequate allowance for an employee who drives 500 miles per month will prove inadequate for an employee whose larger territory requires 1000 miles per month. In the same way, paying the same mileage rate to an employee whose territory averages $3/gal for gas as to an employee whose territory averages $2/gal is unfair. If you want to fairly reimburse or even compensate all employees and avoid the negative consequences that come with failing to do so, you need a more flexible approach.
Here are three tools that can help you create different car allowance or mileage rate tiers based on territory costs.
- AAA Gas Prices
AAA Gas Prices has several useful tools to help you evaluate the sufficiency of your car allowance or mileage rate for particular parts of the country. The chief feature is the color-coded map of state average gas prices. When you click on each state, you get an additional map with gas prices by county. This is important because some states experience significant price differences between different counties.
Also helpful are the charts that compare current prices to past prices and the price trend calculator. These tools can help identify both the range of prices that mobile employees are likely to experience and the regions with the most volatile price changes. Because gas prices fluctuate—sometimes dramatically—it is important to re-evaluate car allowance and reimbursement rates on a regular basis. Ensuring that they reflect current gas prices will help avoid both overpayment and underpayment.
Mechanics charge different rates in different parts of the country. Repairpal.com captures these differences. The primary purpose of the site is to help consumers check a mechanic’s estimate against the reasonable range for a particular service or repair in that consumer’s location. But it can also be used to predict the costs of routine maintenance a mobile employee is likely to experience over a given period of time in a particular area.
By typing in zip codes from various parts of the country, you can get a feel for the degree to which costs vary by geographical location. For example, replacing brake pads for a Honda Accord will cost between $177 and $307 in Iowa, but between $216 and $357 in San Francisco. That’s a 16 – 22% difference that should be reflected in car allowance amounts paid by a national company.
Car insurance rates vary not only by state, but also by zip code. The Average Car Insurance Rates calculator at CarInsurance.com is a helpful tool designed to give consumers a reasonable sense of the car insurance rates in their area. You can also use it to get a sense of the car insurance rates your employees in different parts of the country are likely to experience.
If your company requires a certain minimum coverage (it absolutely should), you need to make sure that your employees can actually afford the required coverage. You should require coverage of at least 100/300/50, but 250/500/100 is best practice to protect the company from liability in an employee-involved accident. Does your current car allowance or reimbursement give employees enough room to purchase sufficient coverage?
Establishing a fair, flexible allowance or reimbursement
Chances are, your car allowance or reimbursement rate is either underpaying or overpaying your mobile employees—or both. As you progress toward matching your policy to your employees’ actual expenses, you may find that you need help—more precise data, a model for administrating varied rates, or help establishing and maintaining the new policy.
If you are interested in making your car allowance or reimbursement fair and flexible, contact mBurse for a review of your policy today. We can provide data to help you pinpoint appropriate allowance amounts or mileage reimbursement rates for your employees and even help you administer the program.