The IRS announced the new mileage rate a couple of weeks ago. The 2018 rate increased one cent to $0.545/mile. One penny per mile might not sound like a lot, but there’s more at stake than a moderate increase in costs. If you’re using the IRS rate as a mileage reimbursement rate for employees, there are fundamental problems that will catch up to you sooner or later.
Problem 1: Past expenses do not reliably predict future expenses
The 2018 IRS mileage rate based not on current costs but on last year’s U.S. national average cost for car ownership and operation. It’s quite possible that the expenses your employees experience in 2018 will either exceed or fall below the IRS rate—and the difference could be significant. Your company may end up reimbursing significantly more than your employees need; alternately, your employees may get shorted. Either way, you have a problem, and it will pay to keep a close eye on whether your mileage rate accurately reflects expenses.
Problem 2: Different locations experience different vehicle costs
Different parts of the country experience different gas prices, different insurance rates, different maintenance costs, and different taxes and registration fees. If your employees work in an expensive area, the IRS rate might not keep up with expenses. If your employees work in a less expensive area, your company may end up overpaying. And if you have employees working across the country in different states, the IRS rate will create inequities due to these varying expenses. As a result of these inaccuracies and inconsistencies, it is imperative that you keep a close eye on costs if your company elects to use the IRS mileage rate.
Problem 3: No matter the rate, mileage reporting drives company costs
Whether you adjust your reimbursement rate or stick with the IRS rate, there’s an even more fundamental problem you must solve. You can institute a rate that perfectly suits your employees’ needs yet still end up overpaying if employees do not accurately report mileage. The best way to manage costs is through accurate logging and calculation of mileage in real time. Logging mileage in real time through automation will yield the most accurate mileage. Remove self-reported mileage from the employees’ control, and managing costs becomes significantly easier.
Employees logging historical mileage after trips occur are prone to forget and overestimate the actual mileage. And if the mileage rate is insufficient to cover expenses, many employees will make up the difference by padding their mileage. Manual calculation is not the best use of time anyway. Employees record and calculate mileage at regular intervals, and the minutes they spend on this process add up to time better spent on profit-generating activities.
Solutions: The two gold standards of mileage capture
As you re-evaluate your reimbursement rate, evaluate also your mileage capture process. Equip yourself with the latest technology to accurately track and report mileage.
GPS mileage app – Mileage capture is automated, removing the mileage calculation from the employee by automatically tracking mileage in real time without compromising privacy. Quality GPS mileage apps are the most accurate because they calculate distance based on the actual route the employee takes, not the Google Maps route.
CRM mileage app – Mileage capture is tethered to your CRM, combining two important tasks and reducing administrative time. You can be assured that if your employees want their vehicle reimbursements they will use the CRM, which will increase adoption to provide better reporting. The CRM will calculate the distance between trips to remove self-reporting as an option.
Not ready to try a mileage app? Use Google Maps.
Using Google Maps, employees can log mileage entries using the addresses to calculate driving distance. This is not the best use of time for employees, but it will make sure employees are staying honest. This is the most laborious of options, but it will help protect your costs.
New Year’s Resolution: Control Reimbursement Costs through Best Practices
With the coming of the new year, take the time to evaluate your reimbursement and mileage capture processes. Organizations that continue to use the IRS mileage rate coupled with outdated tools will continue to forfeit their ability to control costs. Removing mileage reporting capabilities from employees will be your only way to control costs with the increased IRS rate. One cent per mile will add up over time, especially if you have a lot of employees. Leave yesterday’s tools with yesterday’s costs and use today’s tools to manage today’s costs.