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. What are the right ways and, if not taken, what are the risks? That’s what this post is all about.
Labor 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 bee classified as a contractor or not. Illinois passed similar legislation with the IWPCA.
If your company has a car allowance or a mileage reimbursement, you may not be paying your employees enough for the mileage of their business trips, let alone depreciation and other costs. This could result in class action lawsuits and large settlements.
Unreimbursed business mileage used to be a tax-deductible expense. Following the 2018 Tax Cut and Jobs Act, this is no longer the case. Employees who paid to gas up their own vehicles for business driving and received no reimbursement found themselves out thousands of dollars when this deduction disappeared.
Companies without mileage reimbursement programs face 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 at before that reimbursement becomes taxable. Additionally, a company reimbursing at or below the IRS mileage rate must have IRS compliant mileage logs. Anything short of that leaves the company exposed to an 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, provided they keep IRS-compliant mileage logs.
If your company has a car allowance, that allowance is already being taxed as “additional income.” To reduce that tax waste, companies can switch to an accountable allowance plan, which requires IRS-compliant mileage logs.
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.
If your company has a company-provided vehicle program, it can be difficult to tell how fuel is being used. Especially when your company supplies mobile workers with a fuel card.
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, a serious 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, prevents mileage fraud and minimizes accident liability may seem like a pipe dream. But that’s pretty much what the Fixed and Variable Rate (FAVR) reimbursement vehicle program is. You can learn more about how FAVR works here.