Business Vehicle Programs: Car Reimbursement

Businesses across industries need employees to drive for work. From regional managers to sales reps, the mobile workforce is essential. But most companies don’t know of vehicle programs outside of their own. These programs ensure employees receive the reimbursements they drive to earn. One example would be a car reimbursement. So what is a car reimbursement? 

What is a Car Reimbursement? 

A car reimbursement is a business vehicle program that reimburses employees at a cents-per-mile rate for the business use of their personal vehicle. This program has a number of other names: mileage reimbursement, cents-per-mile program, etc. There are also a number of ways a company can stand up a car reimbursement program. 

Benefits of a Car Reimbursement 

A car reimbursement sets itself apart from other vehicle programs in that it can be a tax-free option administered to multiple employees. Companies also stand to control costs by implementing a rate lower than the IRS standard. However, these benefits depend greatly on the way the program is implemented. 

Downsides of a Car Reimbursement 

Car reimbursements are really only ideal for companies with low mileage mobile workers. Employees that drive more than 5,000 miles receive larger reimbursements than necessary, at the companies expense. This is compounded by the fact that most companies use the IRS mileage reimbursement rate (which is not the purpose it is intended for).  

Additionally, when employees track their mileage manually, they will often round their mileage. This rounding, more accurately labeled mileage fraud, may not seem like a big issue. However, take the rounded amount on each trip, multiply it by the workforce and the working days in a year and that amount becomes substantial.  

Finally, car reimbursements aren’t always fair to driving employees. If the company’s mobile workers all operate in the same area, there’s no issue. However, with most companies mobile workers live and drive in different regions and states. The price of owning and operating a vehicle varies across those areas. To reimburse everyone at the same rate is not fair to the employees that live in higher cost areas and pay more for vehicle expenses. 

When should a company use a Car Reimbursement? 

Car reimbursements work best for companies with low-mileage drivers focused in one general area. Companies that use IRS-compliant automated mileage tracking apps mitigate the risk of mileage fraud and audit. With precise mileage capture, employers control costs that generally run rampant with mileage fraud. Further, companies should implement a reimbursement below the IRS mileage rate that still covers the geographic costs of operating a vehicle. Above the IRS mileage rate and the reimbursement becomes taxable income. Too low, and your company may be violating labor laws. 

What’s next for your company? 

If car reimbursement seems like a good fit for your company, explore your options! We have plenty more information if you’d like to know more about our CPM offering. If it seems like your company doesn’t quite work with a car reimbursement, don’t worry, there are other options to choose from! Don’t fall into the trap of thinking there’s only one choice for your company. You can learn more about the vehicle program (or programs) that will bring serious benefits to your business.

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