The Sales Operations Guide to Vehicle Reimbursement
Many industries' sales reps rely heavily on vehicle travel to get the job done. Here’s our guide to ensuring every sales team member is focused on their customers—not on their vehicle reimbursement or car allowance.
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Introduction
No matter the industry or mission of your organization, vehicle travel by sales reps is an essential part of the job. In the Teams, Zoom, and GoToMeeting age, face-to-face interaction is still the gold standard. Whether you pay your reps a car allowance, reimburse their mileage or fuel, or provide a company vehicle, these important workforce members count on a robust and convenient method of reimbursing travel costs.
If your organization does not offer a competitive vehicle program, your workers will not feel supported. But it is also important to be strategic as you design or fine-tune your program. A competitive, well-designed business vehicle policy will attract and retain the kind of people your organization needs to stay on mission.
The hallmarks of a well-designed business vehicle policy
- Business travel costs are fully and equitably covered
- Expensing and mileage capture are automated or streamlined
- Reimbursement systems integrate with CRM
- All technological tools are easy to use
The guide you need
The following guide will equip you to review and overhaul your car allowance or vehicle reimbursement policy to support the vital work of your sales reps and ensure a competitive, scalable program.
If you currently offer company vehicles to employees, consider reading our guide to transitioning some or all of your employees away from company vehicles.
- Chapter 1 Optimized Vehicle Reimbursements for Sales Teams
- Chapter 2 Choose a non-taxable vehicle plan
- Chapter 3 Base reimbursement rates on vehicle expense data
- Chapter 4 Convenient Mileage Capture and Reporting
- Chapter 5 Reimbursement Software Integration
- Chapter 6 Conclusion: Support sales teams with integrated reimbursements
Optimized Vehicle Reimbursements for Sales Teams
What a vehicle reimbursement or car allowance covers
A competitive business vehicle policy will cover the business portion of all vehicle travel costs. This includes the obvious costs like fuel, tolls, oil changes, and other routine expenses that come with frequent driving and the business portion of costs associated with owning a vehicle. These costs include insurance, depreciation, taxes, and municipal fees.
Choosing a business vehicle policy that fully covers these costs for all employees is important.
That can be more challenging than it sounds because some sales reps work in more expensive locations or cover larger territories than others.
With gas prices in California averaging between $4.50 and $5.00 per gallon, it is much more expensive to work there than in Texas, where gas prices average below $3.00/gallon. Should a driver based in California receive the same allowance or mileage rate as a driver based in Texas?
Ways to boost your sales reps’ vehicle reimbursement amounts
To keep your business vehicle policy competitive, you may need to increase the amount for some of your reps by paying a higher allowance or higher mileage rate. There are ways to do this without breaking the bank.
The bottom line is that you want your reps focused on their jobs rather than whether their car allowance or mileage reimbursement keeps up with costs. Here is a set of best practices for ensuring sufficient reimbursement of vehicle costs for all employees who drive for the business.
Best practices for optimizing sales reps’ vehicle reimbursements
- Eliminate taxes on all payments by adopting a tax-free plan
- Adopt an algorithm-based reimbursement payment system
- Factor geographic cost differences into the algorithm you use
- Eliminate inequities between drivers by adopting a FAVR plan
- Integrate payments with an automated mileage capture app
All of these practices to help optimize reimbursements will be explored in the following chapters.
Choose a non-taxable vehicle plan
Switching from taxable to non-taxable car allowances
Going tax-free is a great opportunity to offer a more competitive plan if you are currently paying a taxable car allowance. This is a cost-effective way to boost your sales reps’ benefits and keep them focused on their jobs, not on making ends meet.
- IRS-compliant mileage log to support an IRS-approved mileage rate
- Mileage substantiation for a car allowance (also known as a “mileage allowance”)
- FAVR reimbursement based on standard vehicle cost data
- Personal use chargeback policy for fuel card or company vehicle
The power of eliminating tax waste
By switching from a standard, taxable car allowance to a non-taxable reimbursement plan, you can save money while improving most employees’ take-home amounts. The math is pretty simple.
If a driver receives a $600/month car allowance after withholding income taxes and payroll taxes, that allowance will likely be $400 or less.
On top of that, your budget is also getting hit for the employer portion of the payroll taxes, or $45.90 per employee per month.
By adopting an IRS-compliant accounting procedure, you can reinvest that $246+ into your employees as needed and into other parts of your sales operations budget.
What are the costs of switching from a taxable car allowance to a non-taxable plan?
You lose the simplicity of your current program and add some administrative tasks. But cost-effective solutions exist:
- automate your mileage capture/reporting
- outsource your program administration to an affordable vendor
Base reimbursement rates on vehicle
expense data
The need for an algorithm-based approach
One problem with standard car allowances and mileage reimbursements is that they need to be sufficiently tied to vehicle cost data. The IRS business mileage rate is based on data predicting average costs nationwide based on the previous year’s costs and the outlook for the coming year. Unless your reps uniformly experience vehicle expenses at or near the average American, that mileage rate will either over-reimburse or under-reimburse them.
Car allowances are even worse because they are rarely based on data but more often on a competitor’s amount. Even if you add mileage substantiation to render payments tax-free, you are still capped by the IRS mileage rate, so if you have employees operating in an expensive location, they might not be fully reimbursed, which is a problem if that state requires full reimbursement of expenses (like California, Massachusetts, and Illinois).
The power of localized data
The key is to use localized vehicle expense data. You can purchase this data from a vendor or pay them to calculate your rate. Using localized data increases the accuracy of payments, no matter where your reps are based.
Even better, you can adopt a FAVR reimbursement plan, which bases rates on localized expense data. The other advantage of a FAVR plan is how it separates the fixed, up-front costs (insurance, depreciation, etc.) from the operational costs (fuel, oil, tires, maintenance) and reimburses these separately.
This method increases the accuracy of reimbursements and ensures full reimbursement of all drivers.
The bottom line is that you want your reps focused on building relationships with customers and making sales. You do not want them worried about whether their vehicle reimbursement or allowance covers their costs. You do not want them wondering whether they can find a better travel reimbursement plan at another organization.
Convenient Mileage Capture and
Reportin
Mileage tracking that keeps payments tax-free
The most cost-effective reimbursement methods are tax-free to both the employer and the employee. But this benefit requires an IRS-approved accounting procedure. No sales rep loves spending hours manually entering trips and mileage or uploading receipts for travel expenses. The more you can automate this process, the better.
The power of GPS mileage capture
Businesses have increasingly adopted mobile apps that use GPS to track business trips and record mileage. These apps record mileage in real-time and then upload the mileage later to the company’s expense system. There are several advantages to these apps:
- Increased accuracy with reduced overreporting
- “Set it and forget it,” automated business mileage tracking
- Location information is entered automatically
- Ability to edit out personal trips before submitting mileage
However, supplying a mileage app to sales reps can present some challenges. For all the conveniences, privacy concerns and poor user experience can detract from an otherwise robust vehicle reimbursement program.
Choosing the right mileage app for your sales team
Before providing a mileage tracker to employees, management will want to read reviews and demo the app. Here are some key components to look for:
- Privacy protection through easy and flexible trip-tagging
- Accurate location services, eliminating the constant need to edit trip information
- Customizable and intuitive dashboard that pairs with the app
- Helpful mileage oversight tools built in (e.g., flagging of out-of-scope trips, business analytics reporting, etc.)
- Easy-to-use, efficient route planning tool to optimize trips
- Helpful, easy-to-reach customer support
- Battery-saving features
Reimbursement Software Integration
How many platforms are too many?
From the sales rep’s point of view, the more systems, apps, and platforms you have to learn, the more difficult your job becomes. This is why it is important to choose products that integrate in a streamlined manner to support the work of your reps and reimburse them for their vehicle travel.
Administrative tasks are not high on the typical sales team’s list of priorities. The more you can create systems that streamline admin, the freer your team will be to focus on its primary responsibilities. If mileage capture, expense, CRM software, and other systems are clunky, don’t play well together, or require significant learning time, frustrations will get in the way of productivity.
Here are some ideas for how to integrate the different parts of business vehicle reimbursement with existing systems:
- Adopt a mileage app that integrates with existing CRM software and/or enterprise cloud management software.
- Automate the uploading of trip and customer data from the app into your CRM; this increases the chance that your organization can use these data fully.
- Analyze trip data to enhance training and coaching to increase efficiency and productivity.
Conclusion: Support sales teams with
integrated reimbursements
You can adopt any of the recommendations in this guide, which will make your vehicle reimbursement more effective at supporting your sales teams. You can also consider a vehicle reimbursement policy that does it all. We recommend the combination of a fixed and variable rate allowance, known as FAVR, and an appropriate mileage tracking app to support it.
The FAVR car allowance
An accountable plan, FAVR delivers tax-free payments. This vehicle reimbursement approach uses an algorithm to calculate rates using localized cost data while optimizing payments to low-mileage, mid-mileage, and high-mileage drivers. Paired with an automated mileage app, a FAVR plan can save money and help sales teams be productive and efficient.
Operating a reimbursement system that supports sales teams is a must. But the standard approaches will not cut it.
A FAVR plan takes out the guesswork because it is based on actual cost data derived for the most reasonable vehicle for each employee role.
A FAVR plan is easily integrated with automated mileage capture that is convenient and plays well with your organization’s CRM, and works with your existing expense system.