This merchandising company employs approximately 65 sales reps and merchandisers that visit local chains. The employees operate all over the contiguous United States using personal vehicles to carry out their jobs. Prior to 2016 employees received a standard $475.00/month car allowance that was treated as taxable income.
Voluntary turnover rates hovered around 48% over a 3-year period. The high turnover rates contributed to higher costs associated with hiring replacements as well as lower productivity. Turnover rates also impacted employee morale. When an
As a result, multiple employees complained that the car allowance was not enough to cover their travel costs. Different employees experienced different
In 2016, the company partnered with mBurse to design and implement a new car reimbursement program. With employees fearful that any change might negatively impact their income or time, management initially was leaning toward simply providing all employees with an additional $100/month of taxable car allowance. A second solution involved utilizing the mBurse mileage tracking app. Eliminating self-reported mileage while saving employees time would rein in costs and increase productivity.
After examining the current situation, however, mBurse proposed a FAVR program. This non-taxable reimbursement would combine a fixed allowance amount with a variable mileage rate. Each employee would receive a take-home amount appropriate to his or her travel costs. This was the most equitable solution for all employees and would achieve all of management’s objectives.
As the company learned more about the FAVR program, they could see that the increased net pay to employees would come largely by leveraging the tax waste from the previous car allowance. This would offset any costs to the company while boosting morale.
Management initially expressed concern that the FAVR program would require drivers to use a mileage log. They did not want their employees spending their time logging mileage. However, the mBurse mileage app made a traditionally laborious task easy, leading to the full implementation of the new car reimbursement program.
After the first year the company saw remarkable results. Overall costs decreased by 5.29%. More impressive was the drop in employee turnover by 22%. The client generated ROI in less than 7 months of service.
Mileage capture not only took less time than expected but also provided helpful insight into different employees’ territory sizes to minimize overlap and increase productivity. A vast majority of the merchandisers used the built-in route planning features in the mBurse mileage app to plan their week.
The employees enjoyed a significant increase in their net allowance amount. Overall there was an average annual increase of $1,769, which helped lower turnover and thereby decrease the territory sizes.
Pay better and pay differently—remove the tax waste, and right-size the reimbursement. It’s not a secret that many employees view pay as a key indicator of their growth. As soon as an employee struggles to pay bills, they will immediately start to wonder if this job is for them. As an alternative to raising salaries, switch to a non-taxable car allowance as a means to boost benefits.