Recoup Fleet Program Losses by Switching to FAVR

Written by mBurse Team Member Aug 31, 2020 7:00:00 AM

As the coronavirus pandemic continues, many Americans remain working from home. With company fleets sitting unused, the company car has now become a liability for many organizations. What do you do?

Underutilized fleet, unaffordable expense

High numbers of workers are continuing to stay home, and business leaders expect the numbers to stay elevated even if the pandemic abates in 2021. A July 2020 survey by the consulting firm Willis Towers Watson found that 

Employers expect 19% of their workforce to be full-time employees working from home post-COVID-19, which is roughly half of current levels (44%) but almost three times last year’s figure (7%).

With business trends pointing toward continued remote work, companies that maintain fleets may face significant ongoing losses as they continue to pay for vehicles that are being driven less or not at all.

Some organizations may seek to recouping these losses by culling the fleet and selling these idle or underutilized vehicles. While average used car prices were up over $700 in July, the market is now being flooded with marked down vehicles due to the Hertz bankruptcy, and other rental car companies may follow suit.

Now may be the time to sell, while demand for used cars continues to exceed the supply. Then what? What if employees still need to drive some for work, or if the company anticipates an eventual increase in employee vehicle trips? 

FAVR vehicle reimbursement vs. fleet program

Under the current circumstances, reimbursing employees for the use of a personal vehicle has a huge advantage over supplying a company car. The vehicle reimbursement approach provides far more flexibility, and the company doesn't lose money when employees drive less, since the company pays less.

The simplest approach is to pay a cents-per-mile rate, such as the IRS business rate, but the most cost-effective approach (and most equitable to employees) is the fixed and variable rate reimbursement method, or FAVR.

FAVR is a non-taxable reimbursement method that is exceptionally flexible and scalable. (Both flexibility and scalability problems make the IRS mileage rate a poor substitute for a company fleet program.) Whether you have five employees operating on the road or 200, a FAVR program will prove effective at both preventing the employee from incurring business expenses and the employer from overpaying for the vehicle use.

Whether employees are working mostly remotely and only making trips occasionally, or employees are traveling at near-pre-COVID rates, FAVR will ensure that they are equitably reimbursed for their vehicle expenses. The employer is free of paying for vehicles that are underutilized, and the employee is equitably reimbursed for the times that they do utilize a vehicle. At the same time, the company is able to quickly expand operations as opportunities for travel arise.

There's also the added benefit of no longer needing to operate a personal use chargeback program, a time-consuming but necessary part of effective fleet management.

A data-driven approach to reimbursement

The reason the fixed and variable rate approach is so successful is its reliance on accurate vehicle expense data. Each employee's vehicle reimbursement is based on expense data from their zip code. This ensures that someone working in California is sufficiently reimbursed at California rates, rather than at rates that might be more appropriate for a less expensive state such as Oklahoma.

Contact mBurse to learn more about how switching from a company fleet program to a FAVR vehicle program could help your organization save money in the present and be proactive for the future.

FAVR car driving on highway

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