5 Reasons Why the “Old School” Car Allowance Doesn’t Work Today

Remember the days when you shrugged and accepted that the time and money spent on the vehicle allowance program was just a “cost of doing business?” Wait a second, this is how you are still operating your vehicle reimbursement policy? CarData can help.

While some old school business processes still have value today, odds are a Flat Rate, or other dated VRP (Vehicle Reimbursement Program) isn’t one of them. Here are five reasons why.

1. There’s probably unnecessary risk and invalid expenses
Some traditional plans don’t meet regulations for fair and defensible tax reimbursement. For example, one of our clients had more than 400 employees on a Flat Rate Allowance plan logging a total of over 4.85 million miles per year. Drivers manually tracked and reported activity, which was not auditable and therefore non-accountable. It also was impossible for the company to discern business vs. personal use. That mattered because their plan included a fuel card and there was no practical way to separate gas used when the car was “on the job” or not. After all, you can’t press pause on a gas tank.

2. There’s no accounting for relative cost of living
At first blush, reimbursing all drivers the same amount seems to be fair – there’s no favoritism and consequently no personnel issues, right? Drivers in companies with offices around the country will tell you otherwise. Just like differences in rent, real estate and taxes, the costs for operating a vehicle varies based on location. You might have seen our recent blog post “A Tale of Two Cities: How a Flat Rate Auto Reimbursement Program Sparked Policy Transformation.” In it, we compare Milwaukee and Washington, D.C. Gut instinct will tell you that D.C. is more expensive, but how much? Skim that blog and you’ll find out.

3. You have better things to do than run a Vehicle Reimbursement Program
Most enterprises are in the midst of “digital transformation,” which includes reevaluating core processes and working hard to eliminate data silos. Traditionally, HR and finance take on the administrative tasks that go along with a company-run VRP. While different flavors of old school VRPs call for a varying levels of resources to execute, wouldn’t it be better if a dedicated team of experts took on that burden, enabling HR to ensure the company was protected and Finance to focus on line-of-business decisions? Another plus: The data and processes are moved to the cloud. Data is secure and accessible from anywhere, drivers are paid electronically each month, and the software is maintained by the provider, CarData.

4. It’s possible that people are not making customer visits
Human nature can sometimes get the best of people. Vehicle allowances are often are provided because a lot of driving goes with the job. At some point, just about anyone might
question whether the allowance truly accounts for the wear and tear on the vehicle and on-going maintenance. If an employee feels they are paying out-of-pocket to drive customer visits can be a deterrent.

5. It’s costing you money
We’d be surprised if this point doesn’t get your attention. Moving to an accountable VRP results in FICA reduction – reimbursement is not considered income with a FAVR (fixed and variable rate) plan. If you factor in tax savings with reduced costs for, resources and overpayments, the direct savings are 10% – 30%. We’ve seen customer-after-customer quickly surpass the point where a positive ROI for outsourcing is reached.

Looking for Good Reasons?
Need more reasons to take the next step to ditching that old school car allowance? How about a custom reimbursement plan developed specifically for your drivers and company objectives? Would a mobile app that automates tracking and reporting tip the scales? That’s Mi-Route from CarData, which feeds into our digital platform, an intelligent, economic system that combines cost of living data including daily changes in gas prices to calculate fair and equitable compensation.

Get in touch. We’ll turn that shrug into a thumbs-up.

About CarData Consultants CarData provides precision vehicle reimbursement programs for the mobile workforce. CarData services save money, reduce risk, and remove administration. CarData programs are compliant with the IRS and the CRA procedures.

MEDIA Contact: Megan Dean
Marketing & Sales Specialist | CarData Consultants Inc.
Direct: 303-434-3307 | FAX: 929-235-7525