Priorities are an essential part of getting things done. The most important, the most pressing, the things with the highest impact come first. It just makes sense. But it also means less pressing initiatives are put on hold. Like employee expense reimbursement. Sure, it might not be exactly where you want it to be, but is it a priority? Actually, yes, it is. In this blog, we’re going to outline the reasons you should make employee expense reimbursement a priority.
Employee expense reimbursement is a company paying their employees for the business use of a personal asset. One example of this would be a vehicle program where an employee drives their personal vehicle for work. Another example is an employee using their personal device for work, or working from home and receiving a reimbursement for the business use of their phone or internet.
Typical expense reporting means gathering and submitting receipts. With employee expense reimbursement, companies can set up policies in house or outsource their programs. However, there are downsides to managing employee reimbursements in house. Namely, it has a higher administrative burden and employers are often overpaid. For example, instead of paying for the business use of an employee’s phone, employers pay the whole phone bill. A vendor can help verify reimbursements for an accurate and fair rate.
In the case of a vehicle program, employees may use a mileage capture app to gather and submit mileage logs. This helps to ensure employees receive a fair reimbursement. The right vendor will enable companies to roll out simple submission methods and provide accurate rates to ensure fair reimbursements.
Labor law compliance is high on the list of company priorities. As these 10 reimbursement-related lawsuits show, employee expense reimbursement is essential. The repercussions of not providing accurate reimbursements to employees can be anywhere from thousands to millions in settlement costs, not including legal fees. Ensuring compliance with your employee expense reimbursement means the mitigation of a significant risk.
Some forms of employee expense reimbursement aren’t tax free. This is generally because employers provide employees with a stipend that isn’t directly tied to business use. Without proper attribution, the IRS views those stipends as additional income. That makes them taxable. Let’s look at an example.
Let’s say Jason works as a driver, transporting goods from one location to another in his personal vehicle. For that work, his employer uses a car allowance to pay him a monthly stipend of $576. However, without an IRS compliant record of business mileage, Jason only receives $350 of his monthly stipend. The rest is taxed. What’s more, employers pay more.
Whether it’s for a vehicle program, device program or remote work reimbursement, removing tax waste can be a significant cost control opportunity. In a recent report on tax waste, we estimated that companies with allowance programs pay more than $200 million each year in payroll taxes alone. With the right employee expense reimbursement vendor, labor law compliance and reimbursement-related tax waste both become a thing of the past.
Program spend has been a blind spot to companies for years. It’s easy to continue to reimburse employees at a set rate for the business use of their personal assets. If employees keep submitting the same reimbursement each month, it’s easy to not question their request. They are happy to get a reimbursement, but if you aren’t verifying the amount how much are you overspending? As long as that reimbursement complies with labor laws, why question the process right? Unfortunately, employee expense reimbursement requires a little more oversight to avoid common issues.
One of the biggest issues that a lack of visibility into employee expense reimbursement poses is over spend. There are a number of ways this can play out. For a BYO device program, the company paying the employee’s entire phone bill is a clear example. For a vehicle program, that could be anything from providing employees with a fuel card to relying on manual mileage logs with a cents-per-mile program. Companies often reimburse at the IRS mileage rate to avoid tax waste, but still overspend because they are paying employees at a rate higher than necessary. With the right employee expense reimbursement vendor, these areas of overspend can be minimized and reallocated to other areas of the business.
While device and internet-related employee expense reimbursement is likely to remain fairly stable, business driving is another story. Some vehicle programs are notorious for their lack of insight. Company-provided vehicle programs and car allowances stand out. However, with the right vendor, insights into driving behavior can enable employers to reward top performers and rethink region distribution.
Another reason employee expense reimbursement should be bumped up on the priority list is benefit. The job market remains a competitive one. To appeal to top talent without skyrocketing salaries, employers need to think creatively. They need to provide potential employees with unique benefits that can also provide for current employees. We’re not talking about giving people company cars or home-office stipends. Because there’s more to an employee’s life than their job and the vehicle they drive probably reflects that.
Companies with fleets pay more to get employees behind the wheel of a car they’re not really interested in. Options that reimburse mobile workers to drive personal vehicles for work often fail to reimburse accurately. This often applies to car allowance and mileage reimbursement programs.
With the right vendor, proper employee expense reimbursement means receiving payments that consider both the fixed and variable costs of vehicle ownership. Employees have the flexibility of choice and the promise of reimbursements that accurately account for the business use of their personal vehicle. It’s not a conventional benefit, but it will help your company stand out.
Employee expense reimbursement has taken a back seat for too long. It’s time to tack advantage of the benefits the right vendor has to offer. With labor law compliance on the line and considerable cost control to be gained, why put it off any longer? Explore our platform today to better understand what you stand to gain by working with Motus.