As we discussed in our last post, it is vital to base your vehicle reimbursement operating budget on vehicle expense data. This will help your organization control costs. But there are a few key areas to watch in order to maintain your budget.
The first step to maintaining your budget is to establish a data-driven vehicle reimbursement policy that avoids tax waste. Traditional car allowances and standard mileage reimbursements do not meet this criteria. Both can easily add unexpected expenses to your organization.
These expenses can come in the form of uncontrolled costs due to overreported mileage if you pay a mileage rate. Or they can come in the form of even less visible costs like decreased employee productivity or attrition due to an insufficient car allowance.
All three of these sources of expenses are a particular concern in 2023 because of our inflationary economy. As employees' expenses rise, they will look for ways to cut expenses and protect their income. Driving or reporting more miles can equal a higher reimbursement. Or, in the case of a standard car allowance, driving fewer miles can be a way to save money against the allowance amount.
All of our recommendations in our previous post can help proactively rein in these costs:
Sticking with an operating budget for vehicle travel reimbursements requires regular audits to make sure that your reimbursement plan continues to match the needs of employees while avoiding cost overruns. Here are items to check when you do a mid-year or end-of-year review:
If your organization pays a standard mileage rate like the 65.5 cents-per-mile IRS rate, then your high-mileage drivers are the ones who could drive up your costs significantly. They may also be the most productive employees. Or they may just cover exceptionally large territories. Compare their performance with their mileage amounts, and if their productivity is not reasonable for that amount of driving, work out new parameters.
If your organization pays a car allowance, your high-mileage employees may be at risk of receiving an insufficient payment due to experiencing higher costs. They may be at risk for leaving the organization, which will add costs, especially if it means replacing a highly productive employee.
Some localities involve a much higher cost of living than others. Gas prices in California run $1-$2 higher than average. Auto insurance rates run twice as high in Louisiana and Florida than in Ohio and Vermont. Are the employees working in expensive places receiving a sufficient vehicle allowance or reimbursement?
Of particular concern are people who work in small territories centered on expensive cities and receive a mileage reimbursement. They may not drive enough miles each month to keep up with their high costs. These are employees who could be at risk for leaving the organization, leading to cost overruns in budget categories outside of travel and expense.
If you notice over time an increase in mileage reports, that could mean many things. Your employees may be under-reimbursed and are trying to compensate by driving more or reporting more. Or it may just be that you are using the wrong kind of mileage log and need to switch to an automated mileage app that provides accountability while protecting drivers' privacy.
While your organization's insurance costs lie outside of your vehicle reimbursements budget, they are directly impacted by your vehicle reimbursement policy. If your vehicle reimbursement does not fully cover the costs of employees, they may reduce their auto insurance coverage to save money. This is a particular concern in 2023 as many drivers have seen their insurance premiums increase 15-20% over the past year as companies like Allstate, State Farm, and Geico seek to recover losses.
When employees decrease their insurance coverage, they open up the company to footing the bill in the event of an on-the-job vehicle accident. Company insurance can also get tagged in the case of lawsuits due to negligent entrustment or labor code violations. The proper maintenance of a business vehicle reimbursement budget must take into account the unintended side effects of vehicle reimbursement policies or the lack thereof.
If you would like a sanity check on your vehicle reimbursement spending, mBurse can prepare a benchmarking report. You can also conduct a self-guided audit of your vehicle reimbursement policies to consider both the direct costs of an allowance or mileage rate and the indirect costs related to attrition and insurance risks.
Contact mBurse for Professional Services, from rate optimization to benchmarking to policy audits.