Consider the following scenario where your business reimburses two mobile employees the same flat amount of $400 each month for their business mileage. Both employees drive the same amount: 500 business miles per month and 6,000 business miles annually.
In this scenario, the employee in Baltimore is being over-reimbursed and the employee in Detroit is being under-reimbursed. How does this happen?
Take for example car insurance premiums. In Baltimore, premiums are much less expensive than in Detroit – the average annual premium in Baltimore is roughly $2,423 and average annual premium in Detroit is $7,415.Your employee in Detroit is getting reimbursed far less than what they’re paying just to insure their vehicle. And your employee in Baltimore is viewing their reimbursement as extra compensation rather than the true cost of driving for business. The result? Unproductive employee behavior and mileage reimbursements that aren’t fair or accurate.
Flat car allowances cost employers in FICA taxes and employees with income taxes. So, if you administer a flat car allowance of $400 to your employees, you’re actually paying $430.60 and your employees are only taking home $269.40 each month resulting in annual tax waste of $1,934.40 per employee.
Individual mileage reimbursement programs reimburse your mobile employees based on exactly where and how much they drive for business. From your perspective, it’s a no brainer. Mileage reimbursement costs are reduced, tax liability is eliminated and employees are more productive in the field. For your employees, it’s also a win. Their cost of driving for business is fully reimbursed and they rest assured knowing there’s no W2 reporting involved or federal, state or local tax withholding.
Reimburse your mobile workforce the true cost of driving for business.