More and more people are beginning to drive for work; in fact, by 2020, an overwhelming majority of the U.S. workforce will be comprised of mobile employees. Many of these employees will work in the food and beverage industry, primarily supplying, selling and delivering products all across the country.
As one might guess, the job description from employee to employee will vary, as will the particular vehicle necessary to perform his or her specific duties. Some employees may require a specialty vehicle (such as a branded delivery truck or 18 wheeler), and other employees (such as sales reps or merchandisers) will not.
As a result, food and beverage companies have a plethora of options when choosing a vehicle program. For instance, let’s take a fictional, large-sized beverage distributor, “Bobby’s Brew”. Bobby’s Brew might have a certain number of mobile employees that will need a specific type of specialty vehicle to carry inventory or product, a certain number of sales reps, and a certain number of low-mileage merchandisers. In this scenario, Bobby’s Brew may opt for a vehicle program with a few different offerings, namely: fleet vehicles for those employees that require a specialty vehicle, a flat car allowance for the sales reps, and a cents-per-mile reimbursement for the merchandisers. This may sound like a viable option for Bobby’s Brew, but there is one underlying problem: each offering is equipped with pros and cons as it relates to costs, administrative burden, and ensuring compliance. With that in mind, let’s take a look at different offerings and what each entails.
Types of Vehicle Programs
First off, let’s consider a flat car allowance. A flat car allowance is typically a dollar amount ($400, for example), that is offered to employees once a month. This type of reimbursement is just as it sounds – simple and general; it’s a one-size-fits all approach, and as a result, companies don’t have to calculate individualized employee expenses. That being said, this type of reimbursement offering is subject to both income taxes for employees as well as Federal Insurance Contributions Act (FICA) taxes, which ultimately causes higher costs for your company and less take home pay for your employees. Additionally, flat car allowances don’t account for the variance in fluctuating fixed costs, such as property taxes or car insurance premiums.
Another reimbursement offering that a company may choose is a cents-per-mile program. This option may be attractive for a company because its intention is to reimburse employees based on the actual mileage they drive. Typically, this option is best suited for employees that drive infrequently, and many companies choose the IRS standard mileage rate for reimbursement. The one problem with using the IRS rate is that it tends to under-reimburse low mileage employees and over-reimburse high mileage employees, which leads to inaccuracy across the board. In actuality, the IRS rate is not a recommended reimbursement rate because it fails to account for unique geographic cost variances and labor laws.
A Fleet Vehicle program would be fitting for a company with employees that require a certain type of vehicle to perform a certain type of job. In this case, the company has the ability to select the make and model of the vehicle in order to maintain visibility into the program and preserve a desired type of culture. One caveat to consider, however, is that the company is liable for upkeep and insurance of these vehicles, in addition to tracking the personal usage of these vehicles by its employees. In the end, this process can become time-consuming and costly for a company to endure.
FAVR: A Viable Solution
While different vehicle program offerings have their benefits, each of them also possess their own flaws. The IRS requires that an employee must document business purpose, date, and destination for each business trip. This eliminates the chance of failing a potential IRS audit, and prevents your company from maintaining inaccurate mileage logs. The only true way to ensure this type of compliance is to opt for a fair and accurate fixed and variable rate (FAVR) program. This type of program is an all-encompassing way to reimburse your employees based on the fixed (i.e. insurance, license and registration fees) and variable (fuel, maintenance and tires per mile) costs that come along with driving a vehicle for business.
What’s great about a FAVR program is that it can be implemented with the use of automated GPS-enabled technology, allowing for real-time mileage tracking and accurate mileage logs for both your employees and your company. In addition, it is the only IRS recommended reimbursement rate and is 100% tax free.
The Bottom Line
Food and beverage companies certainly have a breadth of options to choose from when it comes to deciding on a vehicle program. Some programs may seem more suitable than others, but in the end, it makes the most sense to ultimately streamline with a tried and true FAVR program that can automate processes, ensure compliance, and cut costs.
For more on choosing the right vehicle program, check out our guide here.