What is mileage reimbursement to you? What is it to your company? Companies often take their mileage reimbursement program for granted. It isn’t until decision makers start looking for cost control opportunities that they consider making changes. So what is it? And what can companies do to make sure they’re providing the best mileage reimbursement rate for both them and their employees?
Mileage reimbursement is the amount a company pays its employees for the business use of their personal vehicles. Many think of mileage reimbursement as an umbrella term for any vehicle program: car allowance, cents-per-mile (CPM) or fixed and variable rate reimbursement. Those in the vehicle program industry use mileage reimbursement to refer specifically to CPM, as it directly reimburses cents for each mile driven.
Companies with a cents-per-mile reimbursement program generally wait for the IRS to release their yearly business mileage reimbursement rate, then use that exact number. However, this isn’t quite what the rate is intended for. Companies will then over-reimburse high mileage drivers and under-reimburse low mileage drivers.
Additionally, many companies with depend on employees manually logging their business miles. This process is unproductive and often results in mileage fraud. When a company doesn’t spend much time with its vehicle program, it can be hard to keep up.
Companies with a cents-per-mile reimbursement program should reimburse at a rate they decide or outsource to experts. This will minimize the number of under-reimbursed and over-reimbursed drivers and improve vehicle program cost control. The biggest change a company can make to control costs is adopting automated mileage capture.
With app-based mileage capture, employees save the time of reporting essential information for each stop. The accuracy of app-based mileage logs ensures a significant decrease in mileage fraud. It also guarantees IRS-compliance, mitigating audit risk.
If you have a pool of dedicated, regional employees that generally drive no more than 5,000 miles, this is the perfect program. Employees will be reimbursed fairly across the board and the company will see significant cost control. If your company is a little bigger, spanning more than a single state or region, with a fair number of high mileage drivers, mileage reimbursement may not be the best option.
If a company uses mileage reimbursement to cover both low mileage and high mileage drivers, one side will be over-reimbursed and the other will be under-reimbursed. Unfortunately, CPM programs do not account for the price of gas specific to each driver’s location. The difference between cities in the same area might not be that large, but regionally gas prices swing significantly.
Companies do have the option of multiple vehicle programs. Employees driving no more than 5,000 miles each month can continue on a mileage reimbursement. For employees driving higher mileage, say 12,000 miles, companies can reimburse them using FAVR. A fixed and variable rate (FAVR) reimbursement program ensures both the fixed and variable costs of vehicle ownership are accounted for in each reimbursement. What’s more, each reimbursement is specific to the employee driving.
Companies using unmonitored mileage reimbursements can seriously control costs and ensure their employees are reimbursed fairly. However, mileage reimbursements may not be the solution for all businesses. Companies with a larger number of high mileage drivers should consider multiple vehicle programs. While administration of two vehicle programs may sound like a headache, there are experts capable of seamless implementation and general program help. Interested in learning more? Find out what Motus can do for you.