FAVR Program Requirements: Is My Company a Good Fit?

When it comes to vehicle programs, we’re big fans of the Fixed and Variable Rate (FAVR) program. We often highlight FAVR to show its many advantages in terms of cost control, employee satisfaction, and tax benefits. Despite these benefits, the FAVR method may not suit every company or situation. In fact, some companies don’t meet FAVR program requirements. This article explores the requirements that determine whether a FAVR program or alternative solutions best suit your company’s unique needs.

What Is a FAVR Program?

A FAVR program is a mileage reimbursement plan offering precise, tax-free compensation for fixed and variable driving expenses based on IRS revenue procedure. This program’s main advantages are its fairness, accuracy, cost-effectiveness, tax-advantaged compensation and compliance with labor code. 

FAVR programs comprehensively cover both the variable and fixed costs of business driving. This means reimbursements can be customized to account for regional cost differences and individual driving patterns. Taking this personalized approach can boost employee satisfaction, enable better company cost control and ensure tax regulation compliance.  

Fixed Costs

Fixed costs refer to the expenses of vehicle ownership that remain the same regardless of how much you drive. These costs include insurance premiums, license fees, taxes, registration and depreciation. For employees who use their vehicles for business, it’s essential to understand these fixed costs; they provide a baseline for the expenses associated with business-related driving.

Variable Costs

Variable costs are directly associated with driving a car and are dependent on factors like distance driven. They include fluctuating expenses like fuel, maintenance, tire replacements, and oil changes. These expenses are subject to more frequent change compared to fixed costs like insurance premiums and vehicle registration fees. For instance, gas prices vary from place to place. So do fees, insurance rates, and taxes. 

On top of that, employees have different driving habits and drive different mileages from day to day. For individuals who drive regularly, a significant daily cost is the fuel necessary to fill the gas tank. Additionally, drivers who cover more mileage require more oil changes and tire replacements than those who drive less. 

Standard car allowances and mileage reimbursements do not approach these variations as cost-effectively or equitably as FAVRs. Distinguishing between fixed and variable costs is the foundation for dividing FAVR reimbursements into two different rates. This approach is logical and straightforward and provides an easy, comprehensive way to accurately record the expenses of using personal vehicles for work.

What Are FAVR Program Requirements?

Unlike other vehicle programs, FAVR has unique prerequisites. Here are some factors that set FAVR apart from different approaches to reimbursement.

Mileage

FAVR mileage requirements stipulate that companies considering a FAVR program must log a minimum of 5,000 miles annually to qualify. This threshold ensures employees drive a sufficient distance to justify the individualized reimbursement structure of FAVR. Meeting this requirement also ensures the FAVR program accurately captures and reimburses employees’ driving-related expenses. Companies with mobile workforces racking up substantial annual mileage are more likely to benefit from FAVR reimbursements than standard mileage rates.

Driver Count

FAVR programs usually require a minimum of ten drivers to ensure accurate and fair reimbursement calculations. Having a larger pool of drivers gives the program more data to:

• Ensure accuracy and fairness in fixed/variable reimbursement 
• Provide statistical significance for reliable rate calculations
• Analyze individual driving pattern variations more precisely
• Mitigate risks, such as fuel price fluctuations
• Justify administrative expenses
• Promote consistency

Although the ten-driver minimum is a common standard, companies should assess their needs and workforce characteristics before choosing a FAVR program.

Based in the United States

Be aware that FAVR vehicle plans are only available to U.S.-based mobile workforces, as tax laws differ in Mexico and Canada.

How Do These Requirements Impact My Company?

The impact of FAVR program requirements on your company varies depending on its size and structure:

• Large companies: 
  • If your company is sizable, you may have some driving pools that meet the 10-driver criteria and others that don’t. Businesses can apply FAVR to larger driving pools meeting the requirements, while providing alternative reimbursement methods to smaller groups. The implementation may be segmented. 
  • Different driving pools may have varying mileage patterns. FAVR’s minimum 5,000-mile requirement could influence which groups within the company are eligible for the program.
  • IRS rules can complicate plan administration.

• Mid-sized companies: 
  • Mid-sized companies usually have ideally sized driving pools and meet the 10-driver threshold comfortably. FAVR is an ideal in this case, giving you accurate and fair reimbursements across the driving workforce. You’ll be able to justify administrative efforts, and the program will likely function effectively.
  • Meeting the minimum 5,000-mile annual requirement for each eligible driver is manageable for mid-sized organizations. FAVR seamlessly accommodates the varied mileage patterns within the optimal-sized workforce.

• Small companies: 
  • As a small company, FAVR may pose challenges for you. Your company and its driving pool are too small to consider FAVR if you fall short of the 10-driver requirement. Administrative costs may outweigh benefits, and the program may lack statistical significance. Alternative reimbursement approaches might be more suitable.
  • Your smaller driving pools may struggle to meet the 5,000-mile threshold.
  • IRS rules can complicate plan administration.

Is FAVR a Good Fit for My Company?

Ultimately, a FAVR program can be for companies of all sizes. Assessing whether FAVR is a good fit for yours usually comes down to factors like driver count and minimum mileage requirements. You could benefit from a FAVR if your company has high-mileage employees, mobile workers across the country, and the need for flexibility. If you meet these criteria, FAVR stands out for its accuracy and fairness in reimbursing employees for fixed and variable driving costs. Also, ask yourself whether your organization is capable of managing such a program or whether you’d be better off outsourcing plan administration.

If FAVR is a fit, you’ll find the program pays for itself quickly and will appreciate its equitable employee treatment that allows you and drivers to focus on your jobs. Reconsider the plan you have in place and what you stand to gain by making the switch. 

If your company doesn’t meet FAVR program requirements, exploring alternatives can be beneficial. Some of these include car allowance programs, cents-per-mile reimbursement, or hybrid vehicle programs. You can dive deeper into each of these and make an informed decision for your company’s needs in the blog linked below.

Implement a FAVR Program With Motus

Motus simplifies FAVR mileage reimbursement by offering automation, compliance assurance, accurate payments, and cost control. We specialize in creating a seamless vehicle reimbursement process that caters to different roles, business purposes, and locations. The Motus app offers guided workflows and easy submission to provide a hassle-free reimbursement experience. Our platform is specially designed to provide administrators with user-friendly tools to manage FAVR programs efficiently. With configurable rates and detailed reports, you can monitor and track your expenses with ease.

Interested in learning what partnering with us looks like? Check out our guide, Partnering with Motus: The Road to Becoming a Customer and find out!

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