Paying a mileage rate can be a great way to reimburse employees for the use of their personal vehicles. But it can get very expensive.

3 Tips for Reducing Mileage Reimbursement Costs

When you offer a mileage reimbursement to employees, you are acknowledging the value of hazarding a valuable possession for business use. Budgeting for the reimbursements, however, can be challenging. Total mileage reimbursements nearly always increase over time.

This is partly because the IRS has raised their business mileage rate almost every year for the past seven years. This is also because employees have an incentive to drive more to earn more. Here are three tips for reining in the cost of mileage reimbursements.

1. Reduce mileage reimbursement costs through automation.

Your method of mileage capture and reporting is a major source of extra costs. Automating the process reduces employees' abilities to inflate mileage reports while making their jobs easier. Here's how:

Eliminating self-reported mileage for reimbursements

When you allow employees to self-report mileage, any errors or overstatements of mileage will be shaded toward the employee's benefit. Some rationalize that “rounding up” will help keep up with increasing fuel costs or other vehicle expenses. By automating the process, you are capturing mileage when it occurs and basing the mileage costs on the actual route, not the employee's potential overestimation. An accurate mileage tracking app can reduce overstated mileage by 25% or more.

Making mileage capture convenient for employees

Another problem with self-reporting systems has to do with time. Manually entering mileage and trip data into a spreadsheet or web-based expense system is time-consuming. Sometimes the reporting process includes redundant steps. Adopting a mileage tracking app that records trips contemporaneously and uploads the data once a month takes a time-consuming administrative task off employees' hands. The best apps protect privacy by encrypting personal mileage data and avoiding live tracking.

2. Stop rubber stamping mileage reimbursement approvals.

Take some time to review mileage reports from employees. It is easy to extend trust, but it is not always prudent. The mileage review process, however, does not need to consume a lot of time.

How to properly review mileage reports for approval

Start by check the dates and times that trips occur. This simple practice may reveal quite a bit. If they do not match expected times or expected productivity, there may be a problem. You can also check for mileage totals that exceed expectations for specific trips.

You do not need to check every trip carefully. Spot-checking can be sufficient to identify an inconsistency, which can then lead to a more thorough review of the employee in question. If this procedure would be a significant departure from current practices, it would be good to alert employees up front so that they are not surprised if asked a question about a specific trip or mileage total.

3. Explore other reimbursement options besides a standard mileage rate. 

Other reimbursement options will provide a data-backed, transparent reimbursement rate that is fair to the company and your employees. There are other options besides a standard mileage rate that will keep pace with your employees' out-of-pocket expenses while remaining budget-friendly and non-taxed. 

What vehicle reimbursements are there besides mileage reimbursements?

The best vehicle reimbursements incorporate localized vehicle expense data into the calculation of reimbursement rates. This keeps reimbursements accurate for different employees working in different regions. Here are some options:

Smart mileage rate 

A smart mileage rate rises and falls with gas prices and other fluctuating parts of vehicle expenses. Unlike the IRS rate, which is calculated based on national averages and changes annually, this rate would be localized and more frequently adjusted.

Fixed and variable rate

Fixed and variable rate reimbursement, aka FAVR, uses a smart mileage rate but reimburses fixed monthly expenses separately (such as insurance premiums and taxes). This approach increases the overall accuracy above and beyond what a mileage rate on its own can provide.

Updating your company vehicle reimbursement plan

mBurse can help you automate your mileage capture and assist with mileage reporting oversight using the mileage oversight tools built into our platform. mBurse specializes in creating fair, equitable, defensible, transparent, and tax-free reimbursement. Protecting your employees' income from the volatile costs of owning and operating a personal vehicle should be a priority in this inflationary economy.

Schedule a free consultation with mBurse professional services, or order a free reimbursement plan comparison below.