If you’ve purchased a ticket for an event over the past five years, you know once it’s in your cart its price will jump by at least 30%. There are taxes, there are venue fees and other additional fees. At the end of the day, you’re paying $80 or more to see a performance you were ready to spend $50 on. If only they shared those fees and taxes in the original price. Unfortunately, a lot of companies are running into the same issue with their vehicle programs. To prepare you for the unexpected, we’re going to walk through the all in cost of mileage reimbursement and other vehicle programs.
There are four main vehicle programs most companies use: company-provided vehicle, car allowances, mileage reimbursement and fixed and variable rate reimbursement programs. A company might use more than one of these simultaneously. But what’s the all in cost of mileage reimbursement and other vehicle programs? We’ll begin with the most expensive option: the company-provided vehicle program.
Also referred to as a fleet program, companies will either purchase or lease vehicles for their employees to drive. That’s a considerable amount of overhead right there, and that’s most of the cost a company considers when jumping into fleet. Unfortunately, there are additional costs businesses aren’t aware of when they sign up. Those costs include:
Companies signing up for fleet will see an initial price tag, one that doesn’t consider the support costs. A fleet program will also often require a full-time hire or an outsourced effort to manage. On average, fleets cost companies $12,816 per driver in 2021.
Also referred to as an auto allowance or vehicle allowance, companies provide employees with a flat amount each month. Companies like this program for a number of reasons. First, when the payment is the same each month, it’s easy to budget for. Second, it doesn’t take much to set up. Once the allowance rate is set, it’s pretty hands off. But with that ease comes a mountain of issues.
Companies using a car allowance find it easy to focus on the ease of implementation and administration. However, the cost in tax waste, employee engagement and fuel cards should not be overlooked.
Also referred to as a cents-per-mile (CPM) program, companies pay employees cents per business mile driven. With this method, companies commonly use the IRS mileage reimbursement rate, as it guarantees tax-free reimbursements. But even using the IRS rate, companies are still met with unexpected costs. The all in cost of mileage reimbursement includes:
Companies using a mileage reimbursement might find it easy to set the new rate each year. Unfortunately, that often leaves them exposed to mileage fraud, audit risk and at the whim of their high mileage drivers. For most companies, the cost of mileage reimbursement is too high.
Companies use a fixed and variable rate (FAVR) reimbursement for a number of reasons. The issues with the vehicle programs listed above make up a good portion of those reasons. Fixed and variable rate reimbursements pay for the fixed and variable costs of owning and operating a vehicle. These reimbursements are tax-free, specific to employees’ geographic costs and submitted through an IRS-compliant mileage capture app. This program isn’t without its shortcomings.
While FAVR might not be for every company, with the right vendor, it’s a program that offers the most. There’s a lot to learn about FAVR, and this section barely scratches the surface. Interested in learning more? Check out our Blueprint to FAVR Infographic.