Independent Distributor Reduces
Reported Mileage By 38%

THE CLIENT

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.

The Problem

After years of reimbursing at the IRS mileage rate, in 2015 the company reduced its mileage rate to control costs; however, reported mileage increased, increasing the costs.

Two situations complicated the matter. First, 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 classification differed from IRS standards.

Second, a sales rep caused an accident during work hours, resulting in extensive damage to the other vehicle. Because the rep was underinsured, the company had to pay part of the costs. Company policy required employees to maintain the state minimum car insurance. However, the Massachusetts minimum for property damage was only $5,000, insufficient in this case.

The Goals

Properly and equitably reimburse employees
Control company costs
Reduce the company risk profile
Develop a clearer business mileage policy

Solutions

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 cents-per-mile rate. Adopting a FAVR program allowed the company to target reimbursements to each employee’s 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, mLog. 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

Increased requirements for insurance liability
Clearly defined what constitutes business mileage
Explained how the new reimbursement process worked
Implemented annual motor vehicle record checks (MVR’s)

Management was initially apprehensive about implementing a second change to the car reimbursement programming less than two years. Plus, they wondered, how would employees react to having to carry higher insurance coverage?

The Numbers

1st year savings: near-immediate ROI

216%

Return on Investment

38%

Mileage Reduction

$37K

Annual Savings

Results

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. The mileage app provided new insights into business travel ROI and productivity. Management could rest assured that their new reimbursement and risk management policies offered greater protection to the organization.

Key Concept

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.

An equitable reimbursement policy will decrease company costs by decreasing over-reported mileage, especially when paired with an automated mileage tracking app.

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Independent Distributor Reduces Reported Mileage By 38%