There are four well-known options that companies can choose from for their business vehicle program: company-owned vehicles, flat or car allowance, fixed and variable rate and cents-per-mile (CPM) reimbursement. While the Fixed and Variable Rate (FAVR) Reimbursement program is the most comprehensive and flexible, each offers a different solution to the issue of business travel. Take the mileage reimbursement program. Also known as the cents-per-mile (or CPM) program, companies reimburse mobile workers at a cents-per-mile rate for business travel in their personal vehicles. Why might a cents-per-mile program be right for your company? Here are a few reasons:
Whether your company has a small, regional mobile workforce, or your national company has a handful of mobile workers that don’t spend a whole lot of time on the road, a cents-per-mile program is the solution to your reimbursement concerns. As mobile workers driving over 12,000 miles a month are generally over-reimbursed in a cents-per-mile program, the FAVR program better meets those driving needs. The CPM program is a fair option for both the mobile worker and the company at a lower mileage.
Companies that require multiple vehicle programs can simplify their reimbursement process by supporting both their frequent and infrequent mobile workers together. Companies with smaller mobile workforces can ease their reimbursement process with the benefits of the CPM program.
Whether it’s providing transportation for your entire company, or even just the majority of your mobile workforce, company cars are expensive. There’s the lease upfront, then there are the costly fuel cards. Add the potential liability of accidents involving company cars and the expenses skyrocket. Not to mention small repairs that add up, even if damage was incurred on the weekend, outside of typical business hours.
For some companies, fleet vehicles are essential. But your company isn’t in the fleet business. With other things to worry about, you can’t spare the time or manpower to manage and maintain business vehicle inventory. With a CPM program, your mobile workers can travel for work in the comfort of their personal vehicles. No more worries over liability, no more additional fees and concerns over a depreciating fleet of cars. With a fair and accurate reimbursement for business miles traveled, it’s a win for both employer and employee.
With a car allowance program, companies provide mobile workers with a stipend that’s the same amount each month. The big drawback? Because this payment isn’t tied to business driving, the IRS considers it additional income. That makes the allowance taxable. Employees lose an average of 30 percent and employers owe matching payroll tax expense. The nice thing about a CPM program is that reimbursements can remain untaxed if the plan is accountable. What makes a vehicle program accountable? IRS compliance.
An IRS-compliant program requires substantiated mileage records. Every employee reimbursed per mile for business travel is required to keep a mileage log detailing:
– Start and end locations
– Time and date
– Reason for travel
– Total distance
Manual mileage tracking can expose companies to non-compliance, and potentially mileage fraud. Fortunately, there’s another method for recording mileage, and its benefits go beyond assured compliance and reducing mileage fraud risk.
Not every cents-per-mile program guarantees this benefit. It depends on the way mobile workers record their business mileage. For companies that require their mobile workers to track mileage manually, this method is far from administrative burden free. What’s more, time intensive manual mileage logs are typically out of compliance. But companies using automated mileage capture apps are set up for success.
Companies leveraging mobile mileage capture technology enable mobile workers to log trips effortlessly. Implementing automated mileage capture technology removes the need for manual recording and input. It also means more time to focus on other tasks. That’s not just true of driving employees, but administrators that sort through submissions as well.
Many vehicle programs positioned to save your company money are likely to have hidden costs. With a cents-per-mile program, you set the rate you reimburse your employees at. As long as your mobile workers submit compliant mileage logs and are reimbursed at or below the IRS standard mileage rate, there are no tax implications. Additionally, automated mileage capture removes the margin of error associated with manual mileage logs. How’s that for controlling costs?
We can’t say that a cents-per-mile program will be the best fit for every company. And we only have good things to say about the Fixed and Variable Rate reimbursement (FAVR). But if the reasons match what you’re looking for in a vehicle program, then a CPM program is right for you!
We can’t say that a cents-per-mile program will be the best fit for every company. And we only have good things to say about the Fixed and Variable Rate reimbursement (FAVR). But if the reasons match what you’re looking for in a vehicle program, then a CPM program is right for you! So what are those reasons?
Earlier, we mentioned that companies frequently over reimburse their high mileage employees. As it happens, there’s a set of standards that make a company ideal for a cents-per-mile program. The conditions are simple. If the company’s mobile workforce is on the smaller side, drives in the same general area and doesn’t travel more than 5,000 miles each year, then a CPM program is ideal.
We’ve just walked through the reasons a cents-per-mile program might be the right choice for your company. If you found yourself checking off a lot of boxes, then reimbursing at a cent per mile rate might be the right choice for your company. Interested in learning more about the program before diving in? Check out our guide to mileage reimbursement.