What Is Reimbursement?

If you or your company are new to the world of business vehicle programs, you may have some questions about the different options available within the industry.  For the purposes of this article we will look at reimbursement under the lens of any business vehicle program that is based on the employee providing their own vehicle, rather than being issued a company car.

In this context, the most basic definition of reimbursement is a business vehicle program that pays employees for vehicle expenses accrued during business travel. This could be for sales calls, driving out to meet with clients, attending conferences and other necessary trips.

In some cases there could be compensation for personal use, in others money is paid strictly for business use. Here is a look at four reimbursement models:

Flat Rate Monthly

Typically referred to as allowances, flat rate payments are pre-determined amounts regardless of the miles driven. These payments are typically delivered on a monthly basis.

Flat Rate Plus A Fuel Card

With this model, the employee provides their own vehicle and is responsible for maintenance costs and any associated ownership costs, such as insurance and licensing. The flat rate reimbursement will compensate for a portion of these expenses, while the fuel card covers fuel usage. However, giving a fuel card could mean paying for non-business usage.

Cents Per Mile

Also known as the IRS Rate. Cents Per Mile is a non-taxable reimbursement that is based strictly on mileage used for business purposes. This model reimburses for a combination of fixed and operating costs. However, because the cost of purchasing, registering and insuring a vehicle needs to be paid in full, regardless of how many miles have been driven, the IRS rates tends to underpay low mileage drivers, and to overpay employees with high miles driven, a symptom known as “driving for dollars”.

Allowance & Reimbursement

This is the optimal reimbursement model. The combination of allowance and reimbursement recognizes the fact that some vehicle expenses are fixed, while others are a function of the number of miles that are driven. This model pays a fixed amount per month and an operating amount in Cents Per Mile. This results in a fair and efficient program that is based on the employee’s actual expenses.

To learn more about the different types of reimbursement programs, please contact CarData by phone at 1-866-550-5188 or via email to info@cardataconsultants.com.