It pays to outsource the administration of your company car stipend policy. Here are the top ten reasons why.

Corporate car allowance program administration

For years, the corporate world has treated auto allowances and other business vehicle policies simplistically. You pick an amount (often taken from a competitor) and pay it as part of the employee's paycheck, or you reimburse using the IRS standard business mileage rate.

In other words, organizations typically take a "set it and forget it" approach to car allowance and vehicle reimbursement policies. However, several quite costly problems result from this approach:

• Overpayments and underpayments
• Equal rates for unequal vehicle expenses
• Wasted money due to taxed car allowances
• Labor code violations in employee-friendly states
• Employees taking costly measures to boost their reimbursement

Third-party vehicle policy administration can either fully resolve or significantly mitigate these problems. You don't manage your employees' health benefits—you let the experts do it. Why not approach your car allowance or reimbursement program the same way?

10 reasons not to administer your vehicle allowance policy

Here are our top ten reasons to contract out the management of your company's car allowance or business reimbursement policy:

1. Calculating a fair car allowance requires data.

There are two ways to deliver a car allowance or reimbursement that accurately and fairly pays employees for the business use of their vehicles. You can either have employees keep track of receipts or use vehicle expense data to predict employees' vehicle expenses accurately. Obtaining data specific to each employee's zip code is time-consuming, but organizations maintain databases for this purpose.

2. Non-taxable car allowances require complex administration.

Any taxable car allowance is a massive waste of money. Often, around 40% of that allowance amount goes to taxes. The simplest tax-free plan is to pay the IRS business mileage rate as a reimbursement. However, this method is guaranteed to under-reimburse some drivers and over-reimburse others. The most accurate and equitable plan is a fixed and variable rate car allowance (FAVR reimbursement). This method, however, is difficult to administer on your own.

3. A FAVR vehicle plan saves money over standard car allowances and mileage rates.

Switching from a taxable car allowance to a FAVR car allowance administered by a third party typically proves cost-effective. The money going to taxes is redirected into a more valuable benefit to employees and savings to the employer – even after program administration fees. Similarly, switching from the IRS rate to FAVR can reduce over-reimbursements while helping retain previously under-reimbursed employees.

4. Fair business vehicle policies require rate customization.

Gas prices, insurance rates, and maintenance costs all vary geographically. Different employees drive significantly different amounts, so a standard car allowance pays an equal amount to cover unequal expenses. However, a mileage reimbursement only partially fixes the problem because large differences in miles driven result in inequalities between drivers. Delivering equitable payments requires customizing rates by location. However, obtaining the necessary data and calculating the rates is best left to a specialist.

5. Standardized vehicles are in, and standardized rates are out.

The most accurate and fair way to reimburse employee vehicle costs is to derive reimbursement rates and allowances from a standard vehicle selected by the company. This way, the employer avoids paying for some employees' choices to drive gas-guzzling vehicles. Standardizing the vehicle used to derive rates also makes it easier for the organization to customize payments for location-based and distance-based expense differences.

6. Avoid labor code violations in California and other states.

Third-party program administrators specialize in keeping track of different states' labor laws. Not only do you get a quantifiable and defensible allowance or reimbursement, but you also get the services of an organization that stays vigilant on your behalf to ensure compliance with labor codes like California's Labor Code, Section 2802.

7. Insurance verification and motor vehicle record checks reduce risk.

It is crucial to verify biannually that employees carry sufficient auto insurance to prevent company liability in the event of a work-related accident. Motor vehicle record checks must also be conducted regularly to ensure driver safety and mitigate the risk of respondeat superior and negligent entrustment suits. Both of these processes take time and can be most efficiently carried out by a program administrator.

8. Let the experts write and manage your vehicle policies.

Crafting a robust vehicle allowance policy that protects the company from risks while treating employees fairly requires expert knowledge. The policy must also be updated regularly, which many organizations neglect or even avoid due to its time-consuming nature. Outsourcing this responsibility can help your organization stay on its mission and ensure its business vehicle policies fit organizational goals while staying competitive.

9. Automate administration of a cost-effective vehicle reimbursement policy.

Mobile apps now integrate with existing company expense systems and CRM software. These apps can track mileage, provide helpful business insights, and automate car allowance or reimbursement payments. In today's marketplace, employees are increasingly used to automated administrative tasks, and the business vehicle policy requirements should be no exception.

10. Unpredictable conditions demand flexible policies.

The disruptions of the past few years – a pandemic, supply chain disruptions, fuel cost volatility, and rampant inflation – demonstrate the need for policies that can handle rapidly changing circumstances. A car allowance policy should be able to address spikes in fuel prices, increases in vehicle prices, and shifts between limited and unlimited travel. A well-administered FAVR vehicle program is highly flexible no matter an organization's size and regularly adjusts rates.

Company car allowance policy administration – let someone else do all the work

In an increasingly complex environment for business vehicle travel, you want experts to handle the administration of your car allowance or reimbursement program. In the long run, letting someone else do all the work pays off in tax savings, reduced liabilities, equitable treatment of employees, and eliminated administrative hours. 

To learn more about how your organization could benefit from administering an FAVR vehicle program, read our guide to FAVR, try our FAVR comparison calculator (see button below), or schedule a call with mBurse.