How to Build a Vehicle Reimbursement Plan that is Fair for Everyone
Interested in re-evaluating your company’s vehicle program? Vehicle reimbursement can be one of the largest expenses for an employer, outweighed only by healthcare and salary costs. However, there are ways to build a vehicle reimbursement program that are beneficial to the employer and the employee.
Understanding the Hidden Costs of Vehicle Programs
Many vehicle reimbursement programs in the industry can put your company and your employees at risk. Featuring significant tax waste, higher liability, and higher costs.
Data and Accuracy can also be an issue. It can also be challenging to document the exact amount of time the employee is driving his or her car for business resulting in overpayment for the personal use of the vehicle. Underpayment can also play a role when employees aren’t required to drive as many miles which results in an unfair program ultimately affecting company morale.
Tax rates of “compensation” programs make employees feel that they aren’t receiving the reimbursement they deserve. Meanwhile the administrative costs to the employer, and the overall risk to the company is high. What can you do to make it more fair to everyone?
Custom Fixed and Variable Vehicle Reimbursement
With a custom fixed and variable vehicle reimbursement program, you don’t have to own or lease a fleet of vehicles, and you are not responsible for covering vehicle expenses during personal time. Companies only reimburse for business miles while drivers are driving on company time, and the employee has the freedom to drive the car they choose the rest of the time. It’s a win-win.
Another benefit to Fixed and Variable vehicle reimbursement programs is that a non-taxable reimbursement program makes use of fixed and variable rates designed to meet IRS guidelines while ensuring all travel expenses are reimbursed as non-taxable payments. Drivers will see their reimbursements as actual reimbursement paid outside of their gross income, and business will see cost savings by means of lower reimbursements and reduction of FICA payroll taxes.
Here are four simple steps for creating a custom vehicle reimbursement program:
1. Select a Standard Vehicle Profile
What is the type of vehicle that is required to perform the job? A small car? A mid-sized car? A full-sized SUV?
The choice of the vehicle profile creates the foundation of a vehicle reimbursement plan. The vehicle profile satisfies functional business needs and conforms to and enhances your company image.
Drivers have the opportunity to purchase whatever car they choose, one that fits their personal lifestyle as well, as long as it falls within the company vehicle policy guidelines; such as age compliance, and no exotic cars.
2. Take In Regional Considerations
The driver’s home address determines state and local taxes, license and title fees, as well as insurance premiums. The territory picks up the daily fuel prices.
While both the fixed and variable rate and the standard-mileage rate programs provide tax-advantaged reimbursement, fixed and variable is regarded as best-in-class due to the regional accuracy when calculating actual costs. The standard mileage rate is regarded as higher than actual expenses but fair when used on an occasional basis.
3. Assign a Mileage Band
The Mileage Band assists in governing the impact of mileage on the vehicle’s future resale value, and the amount of maintenance and repair dollars.
4. Decide on a Business Use Percent
Total reimbursements are calculated on a business use percentage based on 5 out of 7 days of the week, so 71.4%. The IRS allows up to 75% Business Use.
Automated software tools help reduce the administrative costs of putting a plan like this together and enforcing it. For instance, CarData can automatically capture mileage in the field and automatically populate IRS-compliant daily mileage logs, and monitor driving cost throughout the country to calculate and reimburse employees’ actual costs.
Technology-driven data like this helps companies treat their mobile workers equally by reimbursing actual expenses fairly.
When selecting appropriate technology to manage reimbursement programs, HR directors need to carefully consider their mileage reimbursement policies and how employee-owned vehicles are being used.
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.