Vehicle program liability and compliance are broad topics that differ with every program. The basics, however, are simple. As most things, there are right ways, wrong ways and risks if you go with the second of those options, intentionally or otherwise. So, what are the right ways? And what are the risks of the wrong ones? Here we share what you need to know about vehicle program liability and compliance.
Every state has a system of labor laws to protect workers’ rights. These laws vary state to state. Whether your company operates out of just one state, across a wide region or around the country, you’ll want to pay attention to how labor laws can affect your business.
California’s assembly bill 5 has set a clear example for several other states. If an employee is using a personal asset for work, they should be reimbursed appropriately for it. That includes an ABC test to determine whether an employee should be classified as a contractor or not. Illinois passed similar legislation with the IWPCA.
Does your company have a car allowance or a mileage reimbursement? If so, you may not be paying your employees enough for the mileage of their business trips, let alone depreciation and other costs. Not reimbursing appropriately could result in class action lawsuits and large settlements.
Unreimbursed business mileage used to be a tax-deductible expense. Employees who paid to gas up their own vehicles for business driving and received no reimbursement could write it off on their taxes. However, following the 2018 Tax Cut and Jobs Act, this is no longer the case. Those same employees who received no reimbursement found themselves out thousands of dollars when this deduction disappeared.
As previously stated, some state labor laws require that companies reimburse employees for the business use of personal assets. So what about the states that don’t have the same level of labor laws? Companies can continue without mileage reimbursement programs, but they do so at the risk of facing the consequence of civil lawsuits from employees that go unreimbursed for driving expenses.
Each year, the IRS announces the IRS mileage rate. That rate is the highest amount an employee can be reimbursed before their reimbursement becomes taxable. A company can reimburse at or below the IRS mileage rate. The IRS also requires that miles are submitted in IRS compliant mileage logs. Anything short of that exposes the company to IRS audit.
If your company has a mileage reimbursement, or a cent-per-mile (CPM) reimbursement, reimbursing above the IRS mileage rate creates unnecessary tax waste. A company reimbursing at or below the IRS mileage rate can avoid that tax waste. IRS-compliance is also an essential. Each mileage log must contain specific information to meet the IRS standard. Manual mileage logs leave more room for error. The right mileage capture app makes submitting IRS compliant mileage logs easy.
If your company has a car allowance, that allowance is already being taxed. This is because a car allowance is not substantiated by mileage logs, so the IRS considers it “additional income.” To reduce that tax waste, companies can switch to an accountable allowance plan. An accountable allowance requires IRS-compliant mileage logs. Employees will receive their allowance tax free, up to the IRS mileage rate.
IRS-compliant mileage logs are an essential piece of the reimbursement process. However, employees may not be following the proper guidelines when recording the miles they drive for business. Mileage fraud is as simple as rounding mileage up from a decimal points. That may not seem like a big difference, but multiplied across your mobile workforce and each of their expense reports adds up to an expensive problem.
If your company has a mileage reimbursement program, manual mileage logs can be a serious sore spot. The reimbursements you’re paying out could be for a good deal more business mileage than is actually being driven. As with the issue of IRS compliance, the solution to this is an accurate mileage capture app.
Companies elect to provide employees with fuel cards for several reasons. It may be to cover the costs of gasoline while driving business vehicles. It may be to cover the cost of fuel when an allowance or mileage reimbursement isn’t cutting it. Fuel cards are common, and a common source of financial spend.
If you have a fleet program, you’re already using the most expensive vehicle program option. Fuel spend only balloons those costs. And there’s no real visibility into fuel spend. That makes fuel cards a financial liability. Companies may attempt to curb employees using fuel cards for personal travel by only allowing employees to gas up on business days. This tactic will not prevent employees for refueling twice in one week.
Companies with car allowances or mileage reimbursements providing fuel cards face a similar situation. Fuel cards increase spend in a way you have no insight into. That creates more problems than it will fix. The solution is a vehicle program that doesn’t need to be supplemented with a fuel card. The solution is a program that scales with the economic environment.
When a company provides a fleet vehicle employees can also use for personal travel, the IRS views it as a taxable benefit. In this situation, it is common practice for companies to use a personal-use chargeback. That means employees must track their personal mileage and pay employers for it.
Ultimately, the risk here is an IRS audit. If employees driving fleet vehicles aren’t tracking personal travel, they’re exposed to an audit. This pattern of unsubstantiated mileage may lead to an audit of the company as well.
People who drive for work are more likely to get in an accident than those that do not. It’s simple statistics. Those who spend more time on the road are at a higher risk. Depending on the vehicle program your company is using, that risk can extend beyond work hours.
If your company provides its mobile employees with vehicles, your company is at great risk of litigation. When a driving employee is found at fault in a fleet vehicle, the plaintiff will often go after the company that employed the person at fault. A small accident will result in lost work hours and vehicle repairs and maintenance. A larger accident could cost your company millions of dollars in litigation expenses – even if it doesn’t occur on company time.
Most of these problems require a serious and necessary change in your approach to vehicle programs. A vehicle program that complies with labor laws, maintains IRS compliance, scales with the company, prevents mileage fraud and minimizes accident liability may seem like a pipe dream. That’s where the Fixed and Variable Rate (FAVR) reimbursement vehicle program comes in. You can learn more about how FAVR works here.