Consider the following scenario:
There’s a New-England based microbrewery looking to save time and reduce the administrative burden associated with mileage reimbursement. To keep things simple, they reimburse all of their mobile employees using the IRS safe harbor rate of 54.5 cents per mile. But the IRS Safe Harbor Rate is based on the average cost of operating a vehicle in the previous year and it isn’t recommended as a method of reimbursement by the very institution that created it in the first place.
All employees drive 6,000 business miles annually. But…
In this scenario, Rhode Island-based employees are being drastically under-reimbursed and their New Hampshire-based employees are being over-reimbursed. But why is that the case?
Their RI-based employees will be reimbursed $3,210 annually based off the IRS Safe Harbor Rate but Rhode Island is nationally recognized as one of the most expensive states to own and operate a vehicle, with annual ownership and usage costs amounting to $3,499. Reimbursing this way incentivizes these employees to drive less often knowing that their reimbursement falls short of covering their actual costs of driving their personal vehicle for business.
Their NH-based employees will be reimbursed the same $3,210 annually but New Hampshire is nationally recognized as the least expensive state to own and operate a vehicle, with annual ownership and usage costs amounting to just $2,691. This incentivizes these employees to drive more often in order to increase their monthly reimbursement amount.
It’s clear to see that companies using a cents-per-mile rate to reimburse their entire workforce are creating winners and losers within their organization and not reimbursing their mobile employees fairly or accurately. Individualized programs are tax-free and reimburse mobile employees based on the unique costs of where and how much they drive.
Stop losing cents-per-mile. Individualized reimbursements save on your bottom line. Learn more about how your business can fairly and accurately reimburse its mobile employees.