Mileage Reimbursement For Employees: Compensating Mobile Workers

No matter how big or small your company is, business depends on those who drive for work. Whether they’re sales people meeting with prospects and clients or experts providing a service, these mobile workers play a vital role. Companies should ensure their employees are compensated appropriately for their business mileage. To do otherwise could violate labor laws and expose a company to lawsuits. So what’s the right mileage reimbursement for employees? How does a company decide? There are many data points that factor into a proper reimbursement we’ll explore in this post. 

How much are your employees driving each month? 

Business mileage may vary depending on the season and the role, but some roles drive far more than others. If they’re driving less than 500 miles each month, a cents-per-mile (CPM) program may be the best mileage reimbursement for employees. Calculating the best rate requires a bit more thought and expertise. 

Do your employees require specialty vehicles? 

Waste management companies, utility companies and a few others have their hands tied when it comes to vehicle programs. Because these industries require specialty vehicles, companies are limited to a company-provided vehicle program. Mileage reimbursement would only apply to a vehicle program that compensates employees for the business mileage they put on their personal vehicles. While it’s possible that an employee could personally own a specialty vehicle, it’s unlikely.   

Is your company using your vehicle program as a recruiting benefit? 

It’s far from uncommon for companies to offer their vehicle program as a benefit. For many businesses, that’s a company car. However, there are some downsides to using fleet vehicle programs as a recruiting tool. 

Many new employees are less than excited to drive a fleet vehicle. If they’re going to be spending their days driving around in a vehicle, many prefer driving a vehicle of their own choosing. Sure, some fleet vehicles are luxury sedans offered to executives. But the majority are not. In most instances, personal preferences outweighs the second-hand Ford Fusions or similar fleet vehicles. 

Some companies might also offer a car allowance as a benefit to potential recruits. Those also have considerable downsides. 

Is your company hoping to avoid paying unnecessary taxes? 

Car allowances seem like a good deal at face value. It’s a chunk of cash employees get each month. Pretty neat, right? And they’re very simple for companies to administer. Unfortunately, it’s too good to be true. The IRS views car allowances as additional income. That makes that chunk of cash taxable. So let’s take the average car allowance of 2021: $575. After taxes, that payment becomes $393. 

Also keep in mind, no two employees drive the same amount. Those employees who drive less might have some car allowance left over. Those who drive more may not receive enough each month to cover their driving expenses. The lack of equity and amount of tax waste make the car allowance a poor mileage reimbursement for employees. 

What vehicle program provides the best mileage reimbursement for employees? 

The short answer is it depends on the company and its needs. A lot of companies are looking for a vehicle program that offers flexibility, something car allowance, fleet and CPM programs fail to provide. That’s why many decision makers are exploring Fixed and variable Rate (FAVR) reimbursement programs.  

With a FAVR program, employers provide mileage reimbursement for employees that cover both the fixed and variable costs of vehicle ownership. When properly administered, a FAVR program is tax free, with rates tailored specifically to the area the mobile worker owns and operates their personal vehicle. This means each reimbursement is fair and accurate, making FAVR a recruitment benefit in its own right. 

Curious to learn more about FAVR?  

Learn More Here