Why Cents-Per-Mile Reimbursement Isn’t the Ideal Solution

The IRS Standard Rate, or cents per mile rate, refers to the annual mileage rates used to reimburse employees for occasional business driving. Like all such methods of measurement, it suits certain businesses under certain circumstances more than others. As a result, it is important to examine both the pros and the cons of using the IRS Standard Rate to make sure that is right for your company. If it is not the ideal solution, you should examine other business vehicle programs that may be better-suited to your business’ particular needs.

The Basics of the IRS Standard Rate

To start, the IRS Standard Rate is calculated on a cents-per-mile basis, which pays drivers a set rate for each mile they travel. Under normal circumstances, it is set on annual basis, though rare and unusual occurrences can result in revision before 12 months have passed. In other words, the IRS Standard Rate is simple-to-use, making it perfect for those that use their automobiles for business purposes on occasion. However, it is this same simplicity that causes most of the problems with the IRS Standard Rate.

The Issues with the IRS Standard Rate or Cents Per Mile Reimbursement

Here are the most important issues with the IRS’s cents-per-mile rate that businesses can expect to encounter over the course of operation:

  • First, the IRS Standard Rate fails to take into account the fluctuations in fuel price that can happen over even a short period of time. Given that such fluctuations can build up to significant figures with sufficient passage of time, calculations using said rate can result in unfair outcomes that fail to reflect the realities out on the road.
  • Second, the IRS Standard Rate is the same throughout the United States, no matter where the business is located. Since the United States is so large, enormous regional differences exist when it comes to the costs of using an automobile for business purposes. This results in unfair outcomes from region to region.
  • Finally, the IRS combines both fixed and variable costs when coming up with its Standard Rate. As a result, people who use their automobiles less for business purposes receive less reimbursement than they should, whereas people who use their automobiles more for business purposes receive more reimbursement than they should.

Given these facts, it is clear that the IRS’s cents-per-mile rate is simple to use, but does have its drawbacks when it comes to reflecting the actual costs to drivers. Each business must consider whether this exchange is worth it to them, so that it can make the right choices for its employees and its bottom line.

To learn more about vehicle reimbursement programs, and how to switch from a cents per mile program to a VRP that better suits your business, contact CarData Consultants via phone at 1-866-550-5188 or send an email to info@cardataconsultants.com.