Overcoming the costliest words for 2017 with your car allowance

Written by mBurse Team Member Sep 28, 2017 10:11:00 AM

Conquer your fears of change and start by addressing changing your car allowance or mileage reimbursement policy (2017's costliest words, Part 2)

In our line of work crafting fair and flexible reimbursement policies, we often encounter a startling contradiction: Many businesses operate with a car allowance or reimbursement policy that creates unnecessary costs and headaches, yet most of them have made zero changes to their policy in the last ten years.

Often, the issue is priorities. The car allowance or mileage reimbursement seems like a small part of what the company does, so examining and adjusting the policy isn’t high on the list of priorities. In fact, a lot of these companies don’t realize the problems they’re having with their policies because they are busy carrying out the mission of their organization.

But in other cases, management knows there are problems with the policy but fails to take action. Why? The simple answer is that change is hard, and it produces anxiety in most of us.

New call-to-action

Reasons that may necessitate a policy change

To illustrate the issues at stake, let’s look at some common problems caused by typical car allowance and reimbursement policies. Then we’ll consider how to overcome obstacles to changing these policies—especially the mental hurdles that tend to accompany policy changes in general.

  1. Equal does not mean equitable. It’s pretty common for an organization to pay the same allowance to all mobile employees. But not all employees have the same needs. Some cover larger territories than others. Some work in more expensive regions than others. While the amount may be equal, the result is not equitable—and this can impact a company’s ability to retain top employees. 
  1. Inflexible policies incentivize unproductive behaviors. If a standard car allowance fails to cover an employee’s costs, that employee may opt to drive less, conducting fewer face-to-face meetings with clients. If gas prices spike, an employee receiving a mileage rate may drive more than is necessary (or report higher mileage than is accurate) in order to compensate.
  1. Taxes eat into pay and profits. Switching from a flat, taxable car allowance to a policy that reimburses employees for actual costs delivers an automatic boost to employee benefits in tax savings. Plus, by reducing taxable income across the board, it reduces the company’s FICA expenses. It’s a win-win.
  1. Mileage logs create uncontrolled costs. If a company pays a mileage rate, employees must report the mileage. However, it’s not uncommon for employees to estimate mileage to save time or even buffer their mileage to increase compensation.

Given these realities, you’d think more companies would re-evaluate traditional car allowances and reimbursements. But inconvenience of change and fear of change tend to outweigh these concerns. 

How to approach a possible policy change (Hint: the biggest hurdle is in your head)

If you relate to this tension between the cost of “business as usual” and the inconvenience of change, you need to remember an important principle: an imagined future is not the future itself. In other words, perception does not equal reality.

When it comes to your car allowance and reimbursement policy, your employees and company rely on you to make the best decision. To make the best decision, you cannot let perceived inconveniences outweigh actual costs. If you do, you are letting fear hijack your imagination. Instead of imagining a future in which employees receive equitable reimbursements, maintain productive driving habits, and stay with the company longer, you imagine a future of What ifs?

What if my employees don’t like the new policy?

What if things get complicated?

What if it doesn’t work out? 

The solution is also (mostly) in your head.

The key is to look clearly and logically at your current situation.

If your allowance or reimbursement isn’t keeping up with employee costs, you’re going to have attrition problems or productivity problems, or both. If you’re paying out a taxable allowance, it’s costing both you and your employees in unnecessary tax waste. If you’re using a spreadsheet mileage log, you’re probably subsidizing employees’ extra miles. 

If you’re not sure, you can find out quite easily. We’ll help you. Take the first step with a free benchmarking report today.

2017 car allowance survey results

icon of envelope

Subscribe by Email