Business Vehicle Program: FAVR Reimbursement Plan
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Business Vehicle Program: FAVR Reimbursement Plan

Headshot of a man with a blurred background By Ben Reiland March 10, 2022

Categories: Mobile Workforce Vehicle Reimbursement

On a list of essentials for any company, vehicle programs might not be the first listed. Or even in the top ten. That doesn’t mean it’s not on the list. Just that companies often overlook them. That also means that companies generally aren’t looking for a solution to their current vehicle program until it’s too late. We’re going to explore the FAVR reimbursement plan and the many benefits it offers employers and employees alike. 

FAVR Reimbursement Plan: What is it? 

FAVR stands for Fixed and Variable Rate. Essentially, a FAVR reimbursement plan ensures employees receive the fixed costs and variable costs of driving their personal vehicle for business purposes. It’s also the only IRS approved vehicle reimbursement program. What makes this option so much better than other vehicle programs? 

Fair 

A FAVR reimbursement plan covers both fixed and variable costs. That sets it miles ahead of other programs. Take, for example, a car allowance. With a car allowance, companies simply send a monthly stipend to driving employees. Generally, that stipend is the same amount. It doesn’t take into account the costs of owning and operating a vehicle in the area the employee drives. What’s more, it’s a taxable payment. That’s hardly fair. 

Mileage reimbursements are better. Employers provide employees with a cents-per-mile rate. Unfortunately, this doesn’t account for geographic costs either. Additionally, mileage reimbursements tend to over reimburse high mileage drivers and under reimburse low mileage drivers. That isn’t fair either. 

Accurate 

FAVR reimbursements remain dependent on accurate mileage logs. With the right platform, companies can reimburse employees for the geographic costs of owning and operating their personal vehicle for business purposes. This is leaps and bounds ahead of the car allowance stipend. Flat rates can be substantiated with an accountable allowance, but the issue of geographic costs remains. 

Mileage reimbursements also rely on mileage logs, but when the tracking is performed manually it opens the door for mileage fraud. Mileage capture apps help ensure employees receive the right amount and provide insights to employers that may result in optimized routes or territories. 

Recruiting and Retention 

Because the FAVR reimbursement plan is fair and accurate, companies can leverage it in recruiting and retention efforts. Businesses will often offer company-provided vehicles or car allowances as benefits or compensation. However, fleet vehicles are not the draw for employees they used to be, and that doesn’t even get into the increased expense and risk a fleet program poses. Similarly, car allowances aren’t compensation, as they frequently fail to cover the expenses of driving a personal vehicle for business purposes. 

What comes next? 

Compared with other vehicle programs, the FAVR reimbursement plan is the clear winner. Of course, there are always exceptions. Some industries require fleet vehicles. Other companies with several low mileage drivers in the same geographic location may find mileage reimbursement a better fit. The best path forward is learning more about all vehicle programs, from fleet and car allowance to mileage reimbursement and FAVR. Looking for more information? You’ll find plenty in our guide, Business Vehicles 101. 

Read the Guide

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