Many employers use cents-per-mile reimbursement to pay employees for business use of a personal vehicle. It is simple, familiar, and easy to calculate. But when employees drive different mileage amounts, work in different territories, or face different local vehicle costs, a single mileage rate may overpay some employees and underpay others.
This guide compares cents-per-mile reimbursement with Fixed and Variable Rate reimbursement, or FAVR, so employers can decide which approach better fits their workforce.
Quick Answer: Is FAVR Better Than Cents-Per-Mile Reimbursement?
Cents-per-mile reimbursement pays employees one rate for each documented business mile. FAVR, or Fixed and Variable Rate reimbursement, separates fixed vehicle costs, such as insurance, depreciation, registration, and taxes, from variable operating costs, such as fuel, maintenance, oil, and tires.
Cents-per-mile reimbursement is simpler to administer. FAVR is more structured, but it may be a better fit when employees drive different mileage amounts, work in different territories, or face different local vehicle costs.
Both methods can generally support tax-free reimbursement when IRS requirements are met, business mileage is documented, and accountable-plan rules are satisfied.
Mileage reimbursement vs. FAVR
Many businesses reimburse employees for the use of a personal vehicle. What's the best approach? First, you need to know the difference between a cents-per-mile plan and a FAVR plan.
Cents-Per-Mile vs. FAVR: What’s the Difference?
A cents-per-mile program reimburses employees by multiplying documented business miles by one mileage rate. Many employers use the IRS business mileage rate because it is familiar, simple, and widely recognized.
A FAVR program also uses business mileage, but it adds more structure. Instead of paying only one mileage rate, FAVR separates fixed vehicle costs from variable operating costs. Fixed costs may include insurance, depreciation, registration, taxes, and license fees. Variable costs may include fuel, oil, tires, maintenance, and repairs.
The difference matters because employees do not all drive the same number of miles or face the same vehicle costs. A single mileage rate may work well for simple programs, but it may be less precise when employees work in different cost regions or drive very different mileage amounts.
How rates are generated in each plan
We will explain the finer points of difference below and compare the advantages and disadvantages. But one key difference is how rates are generated. A cents-per-mile plan typically uses a standard rate, such as the IRS business mileage rate. A FAVR plan uses rates derived from localized cost data.
Advantages of FAVR vs. cents-per-mile
A potential customer recently asked about the advantages of each plan. Here is their full question and our full response:
Q: Our company has a couple of hundred employees driving their own vehicles for business. We are currently reimbursing them for business mileage using the IRS mileage rate. The company's cents-per-mile rate makes sense, so why bother with a more sophisticated program like fixed- and variable-rate reimbursement?
In answering this question, we first clearly distinguished between the two types of programs. So let's define and describe each one in turn.
Company mileage rate, or "cents-per-mile"
In a standard reimbursement program, management selects a cents-per-mile rate for employees, who then report business miles. Your organization elected to use the IRS standard business rate. This reimbursement rate remains the same for all mobile employees, regardless of their actual business costs, vehicle choice, or business mileage.
The IRS mileage rate is a tax tool that typically changes only at the beginning of each calendar year, though there have been times (such as in 2022) when the rate was adjusted mid-year. For 2026, the IRS business mileage rate is 72.5 cents per mile for January 1 through June 30 and 76 cents per mile for July 1 through December 31.
The objective of this type of program is simplicity – one rate fits all, and the reimbursement system is straightforward. Employees log trips and mileage in a spreadsheet or mileage app, submit totals, and receive the amount equal to their mileage multiplied by the rate.
But simplicity comes with a downside. Not all mobile employees actually experience the same costs, so a standard cents-per-mile rate can overpay some while underpaying others. The IRS mileage rate can be a useful benchmark, but it is still a single national rate. It does not adjust for each employee’s territory, mileage level, or local vehicle costs.
Fixed and Variable Rate Reimbursement
FAVR, or Fixed and Variable Rate reimbursement, is an IRS-recognized reimbursement method that separates fixed vehicle costs from variable operating costs.
The fixed portion may address ownership costs such as insurance, depreciation, registration, taxes, and license fees. The variable portion may address operating costs such as fuel, oil, tires, maintenance, and repairs.
FAVR can generally support tax-free reimbursement when IRS requirements are met, business mileage is properly documented, and accountable-plan rules are satisfied. It requires more structure than a basic mileage rate, but it may help employers create reimbursement rates that better reflect employee mileage, location, and vehicle-cost differences.
When FAVR May Be Better Than Cents-Per-Mile Reimbursement
FAVR may be a better fit when employees drive different mileage amounts, work in different cost regions, or need reimbursement that accounts for both ownership and operating costs.
A standard cents-per-mile rate is simpler and may work well when employees drive similar mileage levels in similar cost areas. But when mileage, territory, and local vehicle costs vary, one rate can create uneven results.
FAVR gives employers a more structured way to account for fixed and variable costs, employee location, business mileage, and company vehicle standards. That can make it useful for mobile teams with different driving patterns across multiple territories.
How to Choose Between Cents-Per-Mile and FAVR
Employers should choose the reimbursement method that fits their workforce, not just the method that is easiest to explain.
Cents-per-mile reimbursement may be a good fit when employees drive similar mileage, work in similar cost areas, and need a simple reimbursement process.
FAVR may be a better fit when employees drive different mileage levels, work across different regions, or need reimbursement that accounts for both fixed ownership costs and variable operating costs.
The best way to compare the two methods is to review employee mileage, locations, vehicle-cost assumptions, tax treatment, administration, and reimbursement accuracy.
FAQs About FAVR vs. Cents-Per-Mile Reimbursement
What is the difference between FAVR and cents-per-mile reimbursement?
Cents-per-mile reimbursement pays one mileage rate for each business mile. FAVR combines a fixed payment for ownership costs with a variable mileage rate for operating costs.
Is cents-per-mile reimbursement tax-free?
Cents-per-mile reimbursement is generally tax-free when it is documented under an accountable plan and does not exceed the applicable IRS business mileage rate.
Is FAVR tax-free?
FAVR can be tax-free when IRS FAVR requirements are met, including documentation of business mileage and program controls.
When is FAVR better than cents-per-mile?
FAVR may be better when employees drive different mileage amounts, work in different locations, or face different vehicle ownership and operating costs.
When is cents-per-mile reimbursement better?
Cents-per-mile reimbursement may be better for simple programs where employees have similar mileage patterns and local vehicle costs.
Compare Cents-Per-Mile Reimbursement With FAVR
Not sure whether your current mileage reimbursement program still fits your workforce? mBurse can help you compare cents-per-mile reimbursement with FAVR using employee mileage, locations, fixed and variable vehicle costs, tax treatment, and administration needs.
