Is Your 2020 Vehicle Allowance Enough?

Written by mBurse Team Member Dec 2, 2019 8:15:00 AM

Market forces are raising the standards for companies that pay a car allowance or vehicle reimbursement. The loss of a popular tax deduction has left employees who drive a personal vehicle for work looking for more responsive employers.

Is your vehicle allowance amount enough?

One way to answer this question is to benchmark your current amount against the amount paid by competitors and similarly-sized employers. If your employees are among the 62% who found their car allowance or vehicle reimbursement too low in 2019, you want to find a way to retain them and to prevent them from reducing their driving productivity to cut their costs.

According to our 2019 Car Allowance Survey results, only 18% of employers made changes to their vehicle reimbursement policy last year in response to the lost tax deduction for business mileage. However, 89% reported considering changes to their policy for 2020. It is crucial to seize this opportunity to stay on the forefront of fair vehicle reimbursement practices.

Here's how to benchmark your current policy against both your competitors' policies and the policies of similarly-sized organizations. mBurse has created a three-step process to enable an informed policy comparison based on our 2019 data from hundreds of companies nationwide.

Step 1: Assess your vehicle allowance or reimbursement

Before conducting a benchmarking analysis, we recommend that you perform a self-audit that compares your current policy against best practices for vehicle reimbursements. Get started here:

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Step 2: Compare your car allowance or reimbursement

While it helps to first inform yourself via a self-audit, you can compare your company policy to others at any time. The key is to get access to data from companies in your industry as well as similarly-sized companies in other industries. mBurse can provide this information free of charge. For more information on the components of an effective benchmarking analysis, scroll down to the "How to..." section below.

Step 3: Discover your optimal vehicle allowance or reimbursement amount for 2020

Determining the optimal reimbursement rate for your organization on one level is pretty simple – just find out what your employees' vehicle expense needs are. But on another level, it's pretty complicated. Company goals, diverse employee needs, and the ability to control costs can get tangled up. Based on your benchmarking analysis and our extensive market data, mBurse can provide a suggested amount or rate for 2020. For more details, read Four Steps to a 2020 Car Allowance or Mileage Reimbursement. Or get your optimized amount here:

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How to check your competitors' car allowance amounts

Performing a competitive analysis requires access to information about competitor policies. mBurse can provide this free of charge based on your answers to a few questions, such as:

  • Your current vehicle policy type (i.e. car allowance or mileage reimbursement)
  • Your current vehicle allowance amount or rate (i.e. $500/month or $.575/mile)
  • Your company size (i.e. # of employees)
  • The names of three competitors

A benchmarking analysis will offer a window into the amounts competitors and other relevant organizations pay. But it's important to look at more than just these amounts.

3 criteria for vehicle allowance benchmarking

When it comes to getting a sanity check on your current employee vehicle policies, you need to look at the following three areas:

1. Vehicle reimbursement costs

The true cost of a vehicle reimbursement is more than just the amount paid each month. If the company pays a taxable car allowance, then the employee receives less than that stated amount due to withholding. This is because the IRS considers a car allowance taxable income. Similarly, the company pays more than the stated amount because it owes payroll taxes on each employee's allowance amount.

Calculate your company car allowances tax waste

If the company pays a non-taxable reimbursement, such as the IRS mileage rate, then there's no tax waste, but there can be other hidden costs. For example, depending on the company's tool for logging mileage, employees could be inflating their mileage amounts in order to collect larger payments, especially if their current mileage rate isn't keeping up with actual vehicle costs.

An mBurse benchmarking analysis will evaluate the true costs of your company's policy in comparison with other companies, allowing you to find opportunities to save money or leverage hidden costs in your favor.

2. Company risk from employee drivers

With dozens or even hundreds of employees on the road, organizations accrue risk of liability for car accidents and of state labor code violations. By comparing the risk of your company's current practices with the risk of other companies' practices, you can get an idea of opportunities to catch up with or outperform competitors.

An mBurse benchmarking report will compare such practices as verification of employee auto insurance, proactive driver safety policies, and transparent and defensible reimbursement practices in states with employee-friendly labor codes, such as California and Illinois.

3. Overall competitiveness of company vehicle policies

The bottom line is finding out how competitive your current policy is. How likely are you to attract and retain top talent in the current economic landscape? If your current policy has not taken into account the loss of the unreimbursed business expense deduction, then chances are your employees are feeling the pinch and could start looking for work elsewhere.

But if your competitors also have not responded adequately to this change in the tax code, you have an opportunity to gain a competitive edge. An mBurse benchmarking report will give you a window into whether you are lagging behind or leading the way – or sitting in the middle of the pack with an opportunity to take advantage of unresponsive competitors.

Developing a competitive car allowance for 2020

To initiate the comparison process and ensure fair, competitive vehicle reimbursements in 2020, click the button below.

3 self guided steps


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