A Tale of Two Cities: How a Flat Rate Auto Reimbursement Program Sparked Policy Transformation
For Amanda, it was the best of times – almost. For Richard, it was the worst of times, at least when it came to the vehicle reimbursement program both he and Amada were involved with through their company. You see, the company has sales offices in Milwaukee and Washington, D.C. Amanda lives in Milwaukee, Richard in D.C., where the cost of a gallon of gas is about 9% more than Milwaukee and the cost for car insurance is almost $400 higher per year, on average. Amanda drives greater distances to connect with prospects and customers than Richard; her monthly mileage can sometimes double what Richard logs.
The problem is that the company uses a Flat Rate Allowance program, paying them both the same each month to offset the cost of using their vehicle for business. When the plan was launched 10 years ago, it seemed paying everyone the same amount was fair. As a matter of fact, at the time the HR Department sent an email to all drivers to explain how the Flat Rate Allowance was not only equitable, but also added to their salary.
However, it turns out that neither Amanda nor Richard are fairly compensated. Amanda’s mileage frequently exceeds what was originally estimated by the company, compelling her to make contacts over the phone rather than in person at the end of the month. The combination of expenses frequently surpasses Richard’s allowance. They both pay taxes on the allowance since it’s considered income (and so does their employer, to comply with FICA regulations). Making matters worse, changes to the tax laws made it not possible to deduct expenses exceeding 2% of an employee’s gross income, which means that Richard and Amanda, ambitious sales “road warriors,” both will pay out of pocket for business expenses in the coming year.
Time for a Revolution
Figuratively up in arms, Amanda and Richard check with their sales colleagues and learn that they are also unhappy with the VRP. Word reaches the executive team that some of the company’s best sales resources are considering jumping over to a competitor. The National Sales Director calls Richard and Amanda, who both love their job except for the VRP. It clearly was time to “revolutionize” the program.
The company researched the options and brought Richard and Amanda in to discuss what was considered the best solution – a Fixed and Variable Rate Program (FAVR). The company told them that they had engaged CarData, which designed a FAVR program that:
- Tracks fuel prices on a daily basis in each region where company sales personnel are located to calculate the monthly average.
- Includes a series of mileage bands, eliminating over- and under-compensation and encouraging driver-neutral behavior.
- Adjusts reimbursement for fixed expenses, for example car prices, taxes, insurance and licensing.
- Offers the ability to automate tracking using CarData’s Mi-Route app, which also pushes the data to the cloud where it’s stored with the rest of the company’s auto reimbursement relevant information.
- Shifts administration to CarData, including on-boarding, fielding driver questions, driver license inspections and insurance audits as well as regular and ad-hoc reporting for managers, saving significant time and operational expense.
- Reduces the tax burden for employees because FAVR is a non-taxable, IRS-compliant plan.
In the end, Richard, Amanda, their colleagues and the company were happier than ever. The company cut their FICA obligation by 15.3%, saving a big chunk of money that they put toward a new website and sales collateral. The HR and Payroll departments had more time to focus on their core responsibilities. A bonus was that the company also reduced risk; IRS-compliance was assured and a few gaps in car insurance coverage were closed.
Richard and Amanda don’t get the same vehicle reimbursement, and they shouldn’t. Instead, individual fixed and variable costs are accurately accounted for and reimbursement arrives like clockwork via an electronic funds transfer to their checking accounts. And, it looks like next year’s taxes won’t be a problem for either.
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