Constructing a Vehicle Reimbursement Program

In this blog post, we’ll discuss the core construction of an ironclad, effective vehicle reimbursement program.

1. Select a Standard Vehicle. Start the development of your vehicle reimbursement program by figuring out what a ‘standard’ vehicle to meet the needs of your business looks like. You may need a minimalist city car, a crossover with some cargo space or a fully-loaded executive model—figure out your needs, and begin there. This doesn’t need to be a specific model, just a rough model for estimating what sort of up-front costs, upkeep, licensing, etc., you’ll be compensating drivers for.

2. Consider Locale. Where will your drivers be operating? What city or state will they drive in? Will their driving be urban or rural, normal or off-road?

3. Assign Mileage Bands. Vehicles with higher mileage are worth less on resale, which means an appropriate allowance and vehicle reimbursement policy should compensate for such. As you are essentially compensating drivers for the depreciation of their vehicle from driving it, the less their vehicle is worth, the more your reimbursement needs to be. Investigate how the types of vehicles your drivers use lose value over time, and develop a policy for adjusting reimbursement based on retention, when it is right to replace the vehicle.

4. Decide on a Business Use Percentage. Figure out what percentage of your driver’s time in the vehicle will be spent on behalf of the business when calculating your fixed reimbursement. Using numbers pulled from a hat, or based upon another industry’s figures will inevitably result in unfair payments or overpayments to your drivers, both of which you’ll want to avoid. Companies looking to boost morale can bump this number up slightly, but be careful about the opposite—if drivers feel you’re underestimating their business-usage, you risk a loss of morale and the associated loss of efficiency.

5. Determine Variable Expenses. Not all fees should be fixed under a high quality car allowance policy. The cost of fuel is not in any way fixed, especially for drivers operating across a larger area, so savvy companies will adapt their reimbursement dynamically with a variable rate. You’ll also want to take into account maintenance expenses, oil changes, tire replacement, taxes, and other expenses and costs which will vary greatly by region in determining payouts. By integrating this sort of dynamic payment, you keep from overpaying drivers with lower expenses, while enhancing morale for drivers across the board.

If you’d like to see this model of vehicle reimbursement program in action, you can use the CarDATA Smart Database to develop fixed and variable rates in no time, thanks to our extensive collection of precise, customized data. You can also learn more about vehicle reimbursement strategies and developing efficient, profitable transportation by checking out the CarDATA learning center, our blog, or contacting us for a consultation.