This independent distributor for several large manufacturers fields approximately 48 sales reps who operate primarily in the northeastern United States. Up until 2015, reps were reimbursed using the IRS mileage rate.
After years of reimbursing at the IRS mileage rate, in 2015 the company reduced its mileage reimbursement rate in response to increasingly high mileage recorded for the previous year. This move was intended to control costs; however, reported mileage continued to increase.
Complicating the situation, confusion arose over the definition of business mileage. The company had always designated each rep's first and last trip of the day as a commuter, or personal, trip. (All of the reps were based from home.) This mileage classification differed from IRS standards, and the company policy was not clearly stated.
That same year, one of the sales reps caused a fender bender during work hours, resulting in extensive damage to the victim’s vehicle, but no injury. Because the rep was underinsured, the company had to pay for additional repairs to the vehicle. Historically, the company had asked that employees maintain the state minimum car insurance. However, the Massachusetts minimum for property damage was $5,000, insufficient to cover all repairs in this case.
After hearing of lawsuits in which Massachusetts employees were awarded claims for under-reimbursed costs, the company elected to partner with mBurse and implement a Fixed-and-Variable-Rate (FAVR) program, rather than maintain its current cents-per-mile rate or return to the IRS mileage rate. Adopting a FAVR program allowed the company to target reimbursements to each employee’s actual costs in a transparent and quantifiable way. This approach would now protect against lawsuits, reimburse equitably, and help control costs.
A second solution involved utilizing the mBurse mileage tracking app. Eliminating self-reported mileage while saving employees time would reign in costs and increase productivity.
The company also instituted a new professional reimbursement policy that
1st year savings: near-immediate ROI
The outcome laid all concerns to rest. In the first year, reported mileage dropped by 38%, from an average of 2,250 miles/month to 1,395 miles/month.
Overall costs decreased by 7.6% annually through the reduction in reported mileage and associated costs. The company also gained insight into business travel ROI and productivity. They could now rest assured that their new reimbursement and risk management policies were adding greater protection to the organization.
A clearly defined reimbursement policy using objective data to define reimbursement rates will yield impressive results, especially in employee-friendly states. Different employees should receive different reimbursements based on their territory sizes (mileage) and geographical costs. Risky policies that do not clearly define business mileage and reimbursement amounts will set a company up for an expensive solution later. When it comes to risk, it’s important to stay proactive — not reactive.