In 2024, the IRS standard mileage rate for businesses may seem like a fair way to reimburse drivers. However, there are many considerations when determining a fair mileage rate for your business.

When considering possible ways to reimburse employees for vehicle travel, it is important to ensure that the method used is fair. One of the most common methods is to pay a cents-per-mile rate. Some businesses pay the IRS standard rate, which is $0.67/mile for 2024. Others will come up with their own rate, such as 50 cents per mile.

But the question of which rate is a fair mileage rate will depend on several different factors, and not every business will be able to answer the question in the same way. We will explore these factors below.

How much is a fair mileage rate for business?

A fair mileage rate will fully and equitably pay for the business portion of vehicle costs associated with travel for work. Because not all organizations operate similarly, and not all drivers have the same expenses, you'll need to answer some questions upfront to get a clearer sense of your workers' specific circumstances.

• Do employees rely heavily on vehicle travel for their jobs, or do they drive only on occasion?
• Are other forms of payment being offered for vehicle use? (car allowance, gas card, etc.)
• Do all employees drive similar amounts per month for work?
• Do all employees work in areas with similar driving costs?

These factors are important to understand before determining the fair mileage rate for a particular set of employees. 

Frequency of travel and setting a fair rate

To ensure that your employees receive a fair mileage reimbursement, you must first consider how often they use their vehicles for their jobs. This is because the costs covered by a vehicle reimbursement extend beyond just the travel costs of fuel, tolls, and wear and tear. The business portion of vehicle ownership costs, like insurance and depreciation, are reimbursable.

If your employees only drive on occasion, then the business portion of these costs will be minimal. The IRS mileage rate or a somewhat lower rate could be suitable as reimbursement for occasional travel.

But if your employees drive regularly, incurring thousands of business miles annually, you will need to examine your mileage rate closely. The business portion of vehicle ownership costs will be high and challenging to cover with a mileage rate.

Other forms of payment for vehicle use

If an organization pays a mileage rate on top of a regular lump sum like a car allowance, then a fair mileage rate for that organization will be less than for an organization that relies entirely on the mileage rate. The same would be true for an organization that pays for its employees' fuel since a typical mileage rate includes fuel expenses.

You don't want to pay double for the same expense, so it is important to know what each payment is meant to cover. Combining a car allowance with a mileage reimbursement can get prohibitively expensive. But in the case of a fixed and variable rate program, you can pay a fine-tuned and fair mileage rate on top of a regular payment for recurring overhead expenses associated with owning a vehicle, such as car insurance.

A fair mileage reimbursement rate by itself

If your organization is not making any other payments, then a mileage rate alone requires a high amount of scrutiny. It could be easy to just pick the IRS mileage rate since it has already been calculated for 2024 and theoretically represents what a fair rate should be for business travel.

However, when you understand how the IRS mileage rate is calculated, you see that it will not be fair for all drivers. The IRS rate is derived from average costs applied across the country to drivers operating vehicles at 14,000 miles annually. If your drivers work in places that are more or less expensive than average or drive a lot more or less than average, then the rate will not be fair for them.

A mileage rate for drivers who work in different places

If all of your employees are based in the same region, they will experience a similar base set of costs, such as insurance, registration, and taxes. They will encounter a relatively narrow range of prices at the gas pump and similar maintenance costs at local mechanics. This means that a fair mileage rate might be the same for all of your employees.

If you have employees working in multiple states, they will likely experience different costs based on their locations. For example, someone working in Los Angeles and paying almost $5/gallon for gas could be paying under $3/gallon for gas, while someone else working in Houston would be paying under $3/gallon. These kinds of cost discrepancies, which affect fuel costs, insurance rates, and maintenance costs, can mean that a fair mileage rate for one employee would not be fair for another.

A fair rate for employees who drive different amounts

The challenge of finding a single, fair rate for business reimbursements increases when it comes to employees who drive different amounts. If all your employees drive within a relatively narrow mileage range, say 1,000 to 1,200 per month, they will incur vehicle costs at similar rates (assuming the location-based factors are equalized). This means that a single mileage rate for all employees could be fair.

But if you have some employees who drive 500 miles per month and others who drive 2,000, then you have a wide disparity that will significantly affect the fairness of the mileage rate. Unless the mileage rate is pretty high, that low-mileage driver will probably not drive enough to cover the business portion of all their vehicle expenses since some must be paid regardless of how much they drive (insurance, depreciation, etc.). However, a high mileage rate applied to that 2,000/month driver will be overkill.

Or you can try the fixed and variable rate (FAVR) approach that takes care of the business portion of the fixed overhead costs in a separate payment and then calculates an appropriate mileage rate based on how much the person drives and how expensive their location is.

Professional help determining a fair rate

For organizations with employees who have a variety of vehicle expense needs, it is often best to partner with a professional reimbursement administrator. By leveraging their nationwide data and tried-and-true reimbursement algorithms, a FAVR partner can set up a program that accurately and fairly reimburses every single employee.

Get a plan comparison analysis below to learn more about mBurse FAVR programs. Or try our rate development program, which is allows you to walk away with a free optimized reimbursement rate for your organization if you do decide not to partner with us for program administration.