Personal-Use Chargeback: What’s Fair In a PUC?
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Personal-Use Chargeback: What’s Fair In a PUC?

Headshot of a man with a blurred background By Ben Reiland April 29, 2024

Categories: Mobile Workforce Vehicle Reimbursement

When it comes to business vehicle programs, fleets have long been a popular choice. As prices have risen and policy issues persist, more businesses have been considering other options. But those companies not looking to leave their fleet program have their challenges. The personal-use chargeback is a common concern. Namely, what’s a fair personal-use chargeback?  Let’s dive in.

What is a Personal-Use Chargeback?

If you’re here, you probably already know what a personal-use chargeback (PUC) is. But, if you’re fresh to fleet vehicles or just want a refresher, we’ll start with the why.  The IRS considers the personal use of company-provided vehicles a perk. And it is. Access to a vehicle employees don’t have to pay registration or maintenance on, or insurance for? Because it’s viewed as a benefit, the IRS requires that employers charge employees for personal use. What does that look like in practice?

How do most companies do personal-use chargebacks?

The standard set forth by the IRS stipulates that employees must track their personal mileage in much the same way employees on a cents-per-mile reimbursement program track their business travel. After submitting odometer readings and personal-miles traveled to the company, the company will then charge them for use at the IRS mileage reimbursement rate.

While some companies may follow this standard, chances are they’re doing something else. How a business enacts their personal-use chargeback varies by the size of the company, the industry they’re in. At the end of the day, companies wany to be fair to their driving employees. Enterprise-sized companies with larger fleets are more likely to use PUCs as they have a larger accounting workforce. Some companies charge every fleet vehicle driver the same flat fee, say $100 each month. Other companies don’t even charge employees for personal use.

Common Objections

Companies with fleet programs may be hesitant to enact an accurate personal-use chargeback. This hesitation stems from two areas. The first is they don’t want to put administrative burden on their employees. Which, in part, affects their second concern: how employees will react. A personal-use chargeback that requires the accurate recording of personal mileage may be met with employee resistance. They may complain  about the new policy, or simply refuse to follow it, putting the company right back at square one.

Risks of Inaccurate Personal-Use Chargebacks

The biggest risk of inaccurate personal-use chargeback is IRS audit. If employees are not recording personal mileage, they expose themselves and the company to this potential burden. No company wants to go through an audit. That’s common knowledge. But at the end of the day, if driving employees are resistant to policy change, a large number of employers would rather live with the risk of audit than cause attrition in the workforce.

Another risk to consider is, funny enough, employee attrition. If a businesses doesn’t require employees to record mileage but still enacts a $100 a month PUC, that creates winners and losers. The winners, the employees who drive their fleet vehicle every chance they get, don’t have a worry in the world. The losers, employees who truly only drive their fleet vehicle for work and the odd errand, suffer payments that don’t apply to them. If a driving employee already doesn’t care much for their work vehicle, having to pay an arbitrary amount for not even taking advantage of the benefit may have them looking for employment elsewhere.

Best Way to do Personal-Use Chargebacks

Companies looking to thread the gap between lack of administrative burden and an accurate personal-use chargeback do have another option. With a fleet mileage tracking app, employees can easily automate the recording of mileage. Once downloaded, the app will capture the mileage of each trip they take. With the right vendor, each trip in the app can be categorized as “business” or “personal” and business hours can be set to initially categorize travel appropriately.

Moving Forward

The right personal-use chargeback is specific to each employee. There is no set amount that will apply fairly to every individual within a driving workforce. And, with a fleet mileage tracking app, employees can easily record and submit their mileage. There is an additional benefit to the accuracy of a fleet mileage tracking app.

Companies looking to reduce liability and cost may be considering other vehicle programs. Proponents of fleet will argue that company-provided vehicles are a vital asset to the business. With a fleet mileage tracking app, leadership can see how much fleet vehicles are used for business versus personal travel. If the trend drives more toward personal than business use, it might be time to get out of fleet.

Interested in learning more about fleet vehicle mileage tracking? Check out our article.

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