What is a FAVR Vehicle Reimbursement Plan?
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What is a FAVR Vehicle Reimbursement Plan?

Headshot of a woman with an office in the background By Alexis Reed August 29, 2023

Categories: Mobile Workforce Vehicle Reimbursement

If you’ve looked into vehicle programs and ways to reimburse employees for mileage, youve likely come across the most popular options: company-provided vehicle programs, car allowance programs, mileage reimbursement programs and FAVR vehicle reimbursement plan. Of these programs, the FAVR vehicle reimbursement plan stands apart. But how? What is a FAVR Vehicle Reimbursement plan? And why might it be the best choice for your company?

What is a FAVR Vehicle reimbursement plan?

FAVR, which stands for “Fixed and Variable Rate, is a vehicle program grounded in IRS revenue procedure. It has a few different names. Some refer to it as a FAVR reimbursement plan or a FAVR mileage reimbursement. Companies can use this procedure to reimburse driving employees tax-free for both the fixed and variable costs associated with driving for business. Put simply, it is the fairest, most accurate and most cost-effective way to reimburse driving employees who use their own vehicles for work. 

Fixed and Variable Costs

As mentioned above, the FAVR vehicle reimbursement plan is divided into two costs: fixed costs and variable costs. What makes a cost fixed and what makes a cost variable? Let’s take a closer look at each.   

Fixed Costs 

Driving employees pay for insurance premiums, registration and license fees, depreciation and taxes. These are considered fixed costs because they do not fluctuate frequently. 

But the costs of driving a personal vehicle for business go well beyond the fixed costs of insurance and registration. That’s where variable costs come in.  

Variable Costs 

Variable costs included expenses related to actually driving a car. Perhaps the most noticeable day-to-day cost for driving employees is filling the gas tank. They also pay for the variable costs, like fuel, maintenance, tires and oil. Each of these costs fluctuates more regularly than the fixed costs of insurance premiums and vehicle registration. They also change based on the amount of mileage driven. Lower mileage drivers won’t need to have their oil changed or tires replaced as frequently as higher mileage drivers.  

It’s easy to see the difference between the fixed and variable costs. One is the cost of simply owning a vehicle. The other is the cost of actually driving that car. Recognizing that, the separation of FAVR reimbursements into two separate rates makes sense. And it‘s pretty simple, right? 

Geographic Variances

Well, to complicate things a bit, both fixed and variable costs can vary greatly depending on an employee’s location. Here’s an example. Yearly vehicle property taxes are not the same in every state. In Virginia, for example, property taxes average $962. Now look at the average in Montana, which is just $85. That’s an $877 difference per year. And that is only the vehicle property tax.  

If you consider other vehicle costs, the impact of geographic variances grows to be even more substantial. Insurance premiums vary widely, from as much as $2,476 in Michigan to $805 in Maine (a $1,671 difference). Registration fees also differ by state, costing just $14 in Mississippi yet $101 in Illinois.  

But one of the biggest factors, of course, is the price of fuel. Gas prices don’t only vary from state to state, but also from city to city and day to day. These differences in cost can become an administrative nightmare for companies with a widely-dispersed driving workforce to track. With FAVR, an employee’s reimbursement also considers their geographic location. As shown above, when you have employees in multiple states, their driving costs can vary quite drastically. FAVR makes reimbursements fair and accurate.  

graphic stating "FAVR is the only IRS-recommended methodology. Learn more about this program" with button to learn more, evoking FAVR vehicle reimbursement plan

Where Other Programs Fall Short 

It is entirely possible for a company to have the right vehicle program without implementing FAVR. However, more often than not, companies maintain their current vehicle program because they’re unaware of alternatives and the benefits they may provide. What does the FAVR vehicle reimbursement plan have over these programs? Let’s go program by program. 

Company-Provided Vehicle Program or Fleet 

Companies may choose to purchase or lease a fleet of vehicles to control their image and appeal to potential recruits. However, there’s a reason company-provided vehicle programs are the most expensive. Fleet vehicles require considerable maintenance, and turnover in the driving employee base means vehicles frequently sit idle. Fuel cards are another expensive piece of the fleet program, especially when employees are permitted to drive their business vehicle for personal reasons. However, the biggest issue with fleet vehicles is liability in the event of an accident. 

With a FAVR vehicle reimbursement plan, companies avoid the costs of supporting fuel and maintenance for a fleet of vehicles. FAVR programs are flexible to the economy. Companies can scale up or down without worrying about idle vehicle costs. FAVR programs also mitigate the risk of company liability in the event of a vehicle accident.  

Car Allowance or Vehicle Allowance 

Companies may offer a monthly stipend, referred to as a car allowance or vehicle allowance, to pay employees for the business use of their personal vehicles. It’s an easy program to set up and the cost is dependable. However, when car allowances aren’t attributed to mileage, the IRS taxes them as additional income. That means companies pay more and employees receive less. 

With the right vendor, companies can implement a FAVR vehicle reimbursement plan that makes the capturing of mileage as easy as opening an app and driving to the destination. In addition to being fair and accurate, FAVR vehicle reimbursements are tax free.

Mileage Reimbursement or Cents-Per-Mile 

Companies may offer a mileage reimbursement, often at the current IRS mileage rate, to employees driving their personal vehicles for business reasons. This program is fairly easy to administer across a wide driver base. It is also non-taxable as employees submit mileage logs of each trip to receive their reimbursements. However, mileage reimbursement programs are best for a small, regional driver pool that drives an average of 500 miles each month. Mileage reimbursement rates do not take into account the costs of vehicle ownership specific to an employee’s area. Furthermore, with manual mileage logs, employers are exposed to mileage fraud, an issue that adds up quickly. 

As shared earlier, FAVR reimburses employees for the costs specific to their location. And, with the right provider, employees can easily capture mileage through an app. That means no more wasting time manually tracking mileage and mitigated risk of mileage fraud.  

Graphic stating "What are the most popular vehicle programs? Learn more about your options" with button to learn more, evoking FAVR vehicle reimbursement plan

FAVR Mileage Reimbursement: A Recruiting and Retention Benefit

Because the FAVR vehicle 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.

Qualifying for FAVR

While FAVR may be the right choice for a lot of companies, it might not be the right fit for yours. It’s not a question of the number of driving employees in your mobile workforce. However, to qualify for FAVR, employees must drive a minimum of 5,000 miles each year. Whether that only applies to one subset of your mobile workforce, or doesn’t line up at all, your company has other options.

The Motus Platform 

We’ve shared what makes the FAVR reimbursement program so great. It’s the only IRS-approved option. It’s highly configurable, which means organizations can adjust payments within the IRS guidelines to create tax-free reimbursements. That adaptability means reimbursements can be adjusted to whatever economic situation. But FAVR is a challenge to duplicate in house. Most companies using FAVR outsource it to companies like ours. So what sets Motus apart? Let’s start with the Motus Platform.   

The Motus platform powers our solutions, using millions of data points to create accurate reimbursement calculations. Basically, it makes vehicle programs convenient for drivers and simple for employers and administrators. How does that play out? The platform streamlines vehicle program management and compliance with IRS requirements. It also enables employers to customize tax-free reimbursement rates that align to job role needs, employee’s location costs and account for miles driven.  

Ease of Management 

Whether your mobile workforce is five drivers or 5,000, the Motus platform provides all the tools you need to streamline management of a FAVR program. Thousands of companies efficiently and frictionlessly manage their programs using those tools and guidelines. The platform offers streamlined exception management workflows, dashboards on key aspects and program health and helpful reminders for upcoming deadlines. Through the Motus Platform, a single person can manage hundreds of drivers. 

We understand a good reimbursement solution isn’t just about what you can do with it, but how easy it is. That’s why we’ve focused so much into simplifying the approval process. We provide convenient approval workflows, configurable to any team. These workflows can be configured for multiple approvals or a single approver. Reviewers can choose how to approve mileage, either in batches or by individual trips. Admins can also delegate approval responsibility to other team members for as long as necessary. Additionally, these workflows enhance the approver experience, improving insight into reporting to ensure drivers don’t miss their reimbursement if an approver is out.   

The Motus App 

The Motus app is a one-stop for any driver’s reimbursement needs. In less than 10 minutes each month, they can accomplish everything they need to. The app offers guided workflows that simplify setting up. It also offers several options for reporting miles, including automatic mileage capture for trips outside of business hours. The process to review trips in the app is quick and in-app notifications help employees meet deadlines and receive maximum reimbursement amounts. Finally, employees can view their reimbursement rates and history any time in the app or their user portal.   

Graphic stating "Take a tour of the Motus App! Find out how easy it makes mileage tracking" with button to find out, evoking FAVR vehicle reimbursement plan

Reliable Payments 

Processing more than $2 Billion in reimbursements each year, it’s no wonder Motus is a leader in reliable payments. Beyond being reliable, we also offer payment options to meet the needs of companies across industries and sizes. Our payments can integrate directly to any payroll system, or we export approved reimbursements for a payroll system. We can also push expense claims to Concur or other T&E partner, or directly deposit payments to employees for you.  

Implementing FAVR Mileage Reimbursement

With the right vendor, FAVR mileage reimbursement can simplify manual processes with automation, ensure compliance and provide accurate payments, all while controlling costs. Motus works with companies to deliver a frictionless reimbursement experience tailored to role, business use and location. With guided workflows and easy submission, the Motus app makes mileage capture easy for employees. And the configurable rates and in-depth reports of our platform provides administrators with powerful yet simple tools to monitor and manage their program. Interested in learning more? Check out our FAVR offering.

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