“How much should I be reimbursed for mileage?” Ever ask yourself that question? If the answer is yes, you’re not alone. Companies typically reimburse employees that drive their personal vehicles for business purposes. Certain states have laws in place that require businesses to do so. There are a number of vehicle programs employers use to pay employees for the business use of personal vehicles. Unfortunately, not every vehicle program provides for its employees appropriately. So how much should employees be reimbursed for mileage?
Companies have several vehicle programs to choose from. Some work better with certain industries than others. Businesses often keep the same vehicle program, not because it’s what works best, but because it’s the only vehicle program they know. Unfortunately, this can have an impact on how much employees are reimbursed.
With a car allowance, or vehicle allowance, companies pay their driving employees a stipend each month. In 2021, the average car allowance was $575. While this program is easy to implement and easy to account for, it is a taxable option, meaning employees receiving the average vehicle allowance would only receive $393.
With a mileage reimbursement, or a cents-per-mile (CPM) program, companies pay their driving employees for business miles traveled at a cents-per-mile rate. Employers generally use the yearly IRS rate to reimburse employees, though that is not its intended purpose. The issue with a mileage reimbursement is a matter of miles driven. High mileage drivers are typically over reimbursed, while low mileage drivers are under reimbursed.
With a FAVR reimbursement, employers reimburse employees for the fixed and variable expenses of driving a personal vehicle for business reasons. Companies using FAVR reimbursement can ensure employees are reimbursed fairly and accurately based on costs specific to their area of operation.
How much anyone should be reimbursed for mileage depends on a number of factors. It’s not as simple as every delivery driver being reimbursed the same amount. Having the same occupation doesn’t mean you should be reimbursed the same. So what are the factors that contribute to an accurate reimbursement?
Ultimately, employees that drive greater distances spend more money on fuel and maintenance. The more time you send on the road, the more fuel you need, the more frequently your vehicle will require maintenance. Unfortunately, some vehicle programs don’t account for this. Let’s look at a hypothetical.
Employers give a driver who puts 2,000 miles on their personal vehicle a $575 stipend. But they also provide a driver who puts 500 miles on their personal vehicle the same stipend. The driver with less miles to drive might benefit from the stipend. The driver putting four times as many miles on their vehicle will be paying for their business mileage out of pocket. Receiving such a small payment that clearly isn’t providing them enough for the many miles they drive will incentive an employee to drive less.
Driving has different expenses depending on where an employee is located. That could be states away, or even a different part of the same state. This means employees receiving stipends are almost certainly not being reimbursed enough for their driving, especially if the program is national or a large region. The same can be said for a mileage reimbursement.
Consider employees driving in California, where gas is typically more expensive. If they receive reimbursements at the same cents-per-mile rate as an employee in Mississippi, where gasoline prices are generally lower than the national average, that’s neither fair or accurate. Employees who drive around 500 miles each month and receive a mileage reimbursement will generally receive a decent reimbursement. But mileage reimbursements rarely cover the broader costs of owning and operating a vehicle.
While the cost of fuel is what most people think about when talking mileage reimbursements, there’s more to owning and operating your personal vehicle for business reasons. Fixed costs include insurance payments and license and registration fees. These numbers are generally stable and don’t see much change month over month. Variable costs include fuel, maintenance, tires, etc. These costs are more likely to fluctuate. Additionally, these costs are different depending on the area employees live and drive. Reimbursements that aren’t taking these costs into account lack the fairness and accuracy of a fixed and variable rate reimbursement.
If you’ve received a payment recently and wondered, “How much should I be reimbursed for mileage?” the answer depends on the vehicle program your company uses, the miles you drive and the geographic expenses of vehicle ownership. Not sure your reimbursement is fair or accurate? Reach out to your HR department and see how they feel about implementing a new program that will reimburse the right amount.