A Flat Rate program involves a pre-determined allowance paid monthly to employees who drive their personal vehicle on company business. The rate paid out to employees is often consistent across the company. Sometimes the program includes a company-provided fuel card, in which case fluctuating fuel costs are not a concern of the employee. Companies tend to use this flat rate system for the simplicity of its administration. Flat rates may have the misperception of being the most “equitable” method in paying all drivers the same amount. However, flat rates tend to miss the mark in the key areas that hallmark a quality Business Vehicle Program. While easy to establish and administer, flat monthly rates fail to account for:

• fuel – daily movement of fuel prices
• regions – expense differentials in taxes, insurance and licensing
• mileage – the expense difference for an employee who drives 500 miles compared to another who drives 2,500 miles

A high mileage driver should receive a higher reimbursement than a low mileage driver; otherwise they have a disincentive to drive. Once a driver has exhausted their allowance, all additional costs are out of pocket. This risks sales people questioning the next sales call because it's costing them money. Furthermore, if pump prices climb, drivers receiving a flat dollar amount per month may stay closer to their desks rather than meeting customers and prospects The lack of face-to-face contact with customers will affect any business, ultimately wasting resources.

Finally, flat rates are treated as compensation by the IRS, making them taxable income to the driver and subject to employment taxes for the employer.

To learn more about the benefits of trading in your flat rate allowance program for a non-taxable, more efficient and representative vehicle reimbursement allowance program, please visit the following...