Paying an Equal Car Allowance/Mileage Rate? One Size Does Not Fit All

Written by mBurse Team Member Sep 5, 2017 11:18:00 AM

When It Comes to Car Allowances and Mileage Rates, One Size Does Not Fit All

If everything came in one size it would mean excess for some and privation for others. Imagine if everyone received the same amount of food to eat regardless of income, location, or body type. Smaller people would have more than they could eat, while larger or more active people would not have enough to eat. The lack of food might cause people to adapt by either stealing food or developing a smaller appetite.

The same may hold true with your employees and their car allowance and mileage reimbursement rates. A one-size-fits-all business vehicle policy leads to conditions both of excess and privation. Some employees inevitably find that their travel expenses exceed their compensation, so they adapt. And these adaptations might not be so good for your business. An employee covering a large or high-cost territory may be compelled to reduce travel because the car allowance does not cover his or her costs. And an employee receiving a mileage reimbursement rate with a small territory to travel may be tempted to drive extra, empty miles to increase reimbursement.

2017 car allowance survey

Here’s the point:

A one-size-fits-all solution incentivizes costly, unproductive behavior.

Providing a one-size solution is not good business. Your employees rely on your company to help offset their business travel costs for driving their personal vehicle for business. If your employees work in California, it’s the law (Labor Code Section 2802a). If your car allowance or mileage rate leaves some employees under-compensated, you are failing to fulfill your responsibility to your employees. Not only are you tempting them to make costly adaptations, but you are also likely driving them toward the door. And in California, you’re exposing yourself to legal consequences. 

Here’s another important point to consider:

A one-size-fits-all solution cannot address the variety of employee needs.

Large organizations and organizations with a national presence are likely to have employees all over the country. Consider the variety of costs and territory sizes across the United States. Look at a map of gas prices and note the variety. In San Francisco it may be $3.30/gal while in Houston only $2.20/gal. That $1.10 difference adds up pretty quickly. If an employee covering the Bay Area gets the same allowance or mileage rate as an employee covering the Houston area, is that fair? In this case, equal clearly does not mean equitable.

Fuel is only one example of a cost with variations. An employee covering a densely populated territory on the east coast may not need to drive as many miles as someone covering a spread out, sparsely populated territory out west. Plus, different territories come with different insurance rates, maintenance/repair costs, and taxes/fees.

Why do most organizations provide the same allowance or reimbursement rate regardless of location?

Here are some likely reasons:

  • It’s always been done this way
  • It’s easy to administer
  • It’s simple to calculate 

But easy and simple don’t mean fair, and convenience often comes with a cost. In this case, it’s a high cost—in unproductive work habits and attrition.

There are ways, however, to create an allowance or reimbursement policy that’s flexible yet relatively easy to administer. What you need is data about the actual expenses drivers are facing and an automated way to use that data to generate reimbursements.

Contact mBurse for more information on innovative systems that can help you craft a fair and flexible travel reimbursement policy.

The ultimate guide to paying a car allowance or mileage reimbursement

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