You don’t need a blog to tell you that gas prices are high. The prices at the pump are directly related to the Russian invasion of Ukraine. The current administration has taken steps to eventually lower the price of fuel, and several OPEC producers have announced a plan to release more oil. However, gas prices are likely to remain at an elevated level for some time. What does this mean to companies with gas mileage reimbursement programs? How are high gas prices impacting them? And what can they do?
Gas mileage reimbursement, also referred to as a mileage reimbursement or a cents-per-mile reimbursement, is a vehicle program companies use when reimbursing driving employees at a certain rate for each business mile driven in their personal vehicle. Companies that use mileage reimbursements generally reimburse at or below the IRS mileage rate. Reimbursing above that rate makes the reimbursement taxable. So how is a mileage reimbursement program impacted by high gas prices?
Companies reimburse employees for business mileage to ensure they can do their job, whether that’s performing a service, delivering a product or growing the business. When gas prices jump, that can leave driving employees in a lurch.
The IRS mileage rate is calculated based on data from the year prior. This makes the rate less applicable to situations where driving costs become volatile, like the one we’re currently living in. While the IRS has announced rate changes in the middle of the year, it doesn’t happen often. Employees who received reimbursements at the IRS rate may find the current cost of gas far outweighing their reimbursements.
A general issue with mileage reimbursement vehicle programs is their one-size-fits-all approach. As it doesn’t account for individual geographic costs, it unintentionally creates winners and losers. Consider a sales rep driving in California versus a sales rep driving in Mississippi. Those states have very different gas prices, but their company provides them with the same mileage reimbursement rate. On its face, that’s not fair. Add rising gas prices and that unfairness increases.
Companies with gas mileage reimbursements face a challenge. Employees not receiving the reimbursements they deserve could end in a number of ways. For a company to reimburse above the IRS rate would result in taxation and, potentially, an audit. However, there is another option on the table that can avoid tax penalties. That’s a fixed and variable (FAVR) reimbursement.
A FAVR reimbursement accounts for the fixed and variable costs of owning and operating a vehicle. That means drivers receive reimbursements that are specific to the costs in their geographic area. The right provider ensures reimbursements are updated on a regular, weekly cadence. In addition to this, there are further benefits to a FAVR program.
With the right program, employers can receive greater insights into their driving workforce. This can result in optimized routes, more efficient administration and fewer miles traveled. Companies can also set up policies to ensure field reps meet the standards of the company image. Requirements like proof of insurance can insulate the company from risk exposure. Companies can also decide on the vehicle type, age and mileage when determining reimbursements.
Interested in controlling vehicle program costs in a way that benefits driving employees? Learn more about our FAVR offering today!