Many organizations attempt to address the fact that auto allowances alone after taxes will not be adequate in covering mobile employees costs of operating their vehicle. When a company takes their auto allowance in house to find a solution we refer to it as a Hybrid or In-house/Home Grown reimbursement policy. Hybrid reimbursement policies are auto allowances with:

1. A fuel reimbursement or fuel card
OR
2. A mileage reimbursement rate

What these organizations don't realize is that they are making increasing or compounding the problem. While it may seem like an ideal solution you are just throwing money at the problem which unnecessarily increases your organizations costs while contributing to the over and under reimbursement of your mobile employees.

If you are providing an fuel card or fuel reimbursement:

1. It is difficult to determine business costs vs. personal costs of an employee in the field?
2. If your organization provides a fuel card how are you managing the personal use chargeback?
3. Your organizations costs are based on the type of vehicle your employee has (Hummer vs. Prius), which are obviously not the same level of expense
4. Creates inequity based on employee’s personal choice in cars (employees receive fuel benefit based on their fuel economy, honor system (with fuel consumptions) and territory size
5. The auto allowance amount was not based on data
6. By allowing employees to report unproven mileage, it promotes driving for dollars
7. If you have employees in CA you have to reimburse them properly (Labor Code 2802(a) While it may seem like an ideal solution to provide employees with a package and send them into the field, this “solution” could be costing your substantially in unaccounted for costs.

There are several common issues with “home grown” auto allowance and reimbursements you may experience but not notice. Your organization may:

1. Be experiencing challenges managing and controlling employee vehicle reimbursement expenses.
2. Want to remove the unnecessary tax waste from the auto allowance.
3. Like to get a sanity check on your car allowance/reimbursement spend by benchmarking
4. You are looking for alternatives that are equitable, accurate and defensible

It’s time to stop the slow leak of money caused by programs like this. Consider our solutions here.

One of the oldest classic reimbursement programs for mobile employees is providing a flat per-mile rate for reported business mileage. It is implemented based on ease of use and understanding, mobile employees are reimbursed based on mileage.

Many organizations utilize the IRS rate, a tax tool, for reimbursing their mobile employees. The IRS rate is very inaccurate utilizing last years average costs to determine this years rate. By utilizing historical costs as opposed to actual costs the IRS rate inaccuracies will contribute to over-reimbursing high mileage mobile employees and under-reimbursing lower mileage mobile employees.

Some challenges with this classic program that you may experience but notice:

• The rate doesn’t coincide with current and local fuel prices
• The IRS rate is not based on current data or geographically specific data, if you're using a rate other than the IRS reimbursement rate it is not based on actual data.
• Your costs will be impacted by the type of your mileage log you utilize
• If you have employees in CA you have to reimburse them properly (Labor Code 2802(a)

A one size:

Flat Allowance

The flat taxable car allowance is one of the most common methods of vehicle reimbursement. Companies typically pay a set amount to all employees as it is simple and easy to administer; to offset driving costs. This is also one of the most costly methods of delivering dollars to your mobile employees because it creates an unnecessary tax burden on your employees and your company. Every employee receives the same amount, even though they experience different costs to operate their vehicles (fuel, insurance, maintenance, taxes and registration). This is not an equitable program.

Here are some issues with this classic program that you may experience but not notice:

• Each employee has a different territory size (they drive different mileage bands per employee) – this places different levels of wear and tear on each employee’s vehicle.
• You may under-reimburse some and over-reimburse others?
• The amount of the car allowance is not based on real data – it’s an arbitrary number that does not treat your employees equitably.
• You haven’t addressed the car allowance in at least 10 years.
• Doesn’t rise and fall with fuel prices
• If you have employees in CA you are required to reimburse them properly (Labor Code 2802(a))

All of these issues can lead to employees driving less to manage their costs, its time to remove the unnecessary tax waste.

one size does not fit all

YOU HAVE A RESPONSIBILITY TO PROTECT YOUR EMPLOYEES INCOME FROM THE VOLATILE COSTS OF AUTO OWNERSHIP AND OPERATIONAL COSTS?