In this article, we are focusing on employees who operate a personal vehicle in order to fulﬁll job requirements. If your organization issues company vehicles, then you are reimbursing a much narrower set of costs. For more information on how to properly administer a company car program, including a personal-use chargeback policy, check out our ﬂeet management tools.
When paying a car allowance or reimbursement to cover the use of a personal vehicle, the following expenses all must factor into your rate:
We have gathered comprehensive data from across the country to help companies optimize car allowances and mileage reimbursements. Using the chart below, you can get a rough estimate of the optimal monthly take-home pay that employees working in different parts of the country should receive. Keep in mind that, without knowing your employees’ speciﬁc work requirements and zip codes, it’s impossible to generate a precise expense estimate. So use the following chart as a general guide or tool to get you started—not as a substitute for a precise evaluation of employee expense needs.
For each of the following scenarios, we assume 1,250 miles driven per month.
If you pay a mileage reimbursement rate, it is vital to remember that even an optimized rate cannot protect your organization from inaccurate mileage tracking. Self-reported mileage is the Achilles’ Heel of mileage reimbursement. Many organizations use Excel spreadsheets or expense systems to record and calculate employee mileage. The employees often use Google Maps or some other calculation tool to estimate their monthly mileage, which they then report. However, this method carries several vulnerabilities:
In light of these vulnerabilities, it is vital to utilize an accurate mileage tracking program, ideally using a real-time mileage tracker that transparently records trip length without invading employee privacy. To learn more about mileage tracking options, read “Everything your business needs to know about mileage tracking.”
While undertaking the four steps we have outlined, you will likely discover that you need more precise expense data than you have time or resources to gather. There are three ways mBurse can help you generate accurate, defensible vehicle reimbursements. All of these solutions use a standard vehicle while customizing rates to speciﬁc zip codes where employees garage their cars.
You answer a set of questions about your employees’ locations, territory sizes, and job responsibilities, and we use our extensive data to give you optimized rates that will work for your current car allowance or mileage reimbursement program.
This option involves a more extensive optimization of your mileage rate. Based on your company’s goals and its employees’ territories and responsibilities, we develop cost-sensitive mileage rates for all employees. These rates adjust over time to reﬂect changing expense realities, allowing you to stay responsive to the volatile changes that can occur in gas prices, taxation, and more. mBurse will help you administer your program while integrating with your existing payroll and CRM software.
The Fixed and variable rate reimbursement is the most comprehensive solution available. Using your company’s particular goals and needs, we will design and implement a non-taxable reimbursement program that precisely addresses both the ﬁxed costs and variable costs of using a personal vehicle for work. Our FAVR vehicle program combines a ﬁxed monthly allowance with a variable mileage rate that tracks with changing levels of expense. The best part is that we do all the work of managing your reimbursement program while integrating with your existing payroll and CRM software.
As you consider the variety of factors in optimizing your organization’s car allowance or vehicle reimbursement rate, it may seem overwhelming—so overwhelming that you decide to just stick with the status quo and hope that the tax reform does not negatively impact your program. But consider the following possible consequences of a “wait and see” approach:
Our goal at mBurse is to help companies save money while reimbursing employees properly. We hope that this guide to rate optimization has been helpful, but if you would like more direct guidance, schedule a phone call today with one of our advisors.