Flat Rate Car Allowance Programs vs. CarData Vehicle Reimbursement Programs
WHAT IS A FLAT RATE CAR ALLOWANCE?
A Flat Rate Allowance program involves a predetermined allowance paid monthly to employees who drive their personal vehicles on company business. The rate paid out is often the same Flat Rate across the company across the states where the business operates.
Companies tend to use the Flat Rate method for the simplicity of its administration. Flat rates may have the misperception of being the most “equitable” method in paying all drivers the same amount. However, flat rates tend to miss the mark in the key areas that hallmark a quality Business Vehicle Program.
WHAT ARE THE DOWNFALLS OF A FLAT RATE CAR ALLOWANCE PROGRAM?
IT’S ALL TAXABLE MONEY
The Flat Rate Allowance is not an IRS suggested method of reimbursement. The Flat Rate is taxable because it does not reimburse based upon the expenses in the employee’s region.
COMPENSATION CAN BE OVER/UNDER ACTUAL COSTS
While easy to establish and administer, flat monthly rates fail to account for fluctuations in fuel prices, different regional costs and the expense differences between an employee who drives 500 miles compared to another who drives 2,500 miles. Since gas prices are not typically reimbursed, then the Flat Rate can result in over/under compensation of expenses.
THE SAME PLAN DOES NOT WORK FOR ALL EMPLOYEES
A high-mileage driver should receive a higher reimbursement than a low-mileage driver. Otherwise they have no incentive to drive, which may negatively impact the quantity of sales calls made. Once a driver has exhausted his or her Flat Rate allowance, all additional costs are out of pocket.
THEY DON’T TAKE GAS PRICES INTO CONSIDERATION
If gas prices at the pump climb, drivers receiving a flat dollar amount per month may also choose to stay closer to their desks rather than meet face-to-face with prospects, which ultimately adversely affects business.
FUEL CARDS TAX PERSONAL FUEL CONSUMPTION
If the company provides a fuel card, the IRS will tax the personal amount of fuel used on weekends, evenings and home-office commuting.
READY FOR AN ACCURATE, NON-TAXABLE VRP?
CarData mitigates this risk by designing plans that are sensitive to specific locales, producing fair and accurate reimbursements for drivers. CarData VRPs (Vehicle Reimbursement Plans) adhere to IRS protocols allowing for non-taxable payments.
By utilizing CarData’s Direct Pay service companies achieve separation of reimbursement and compensation; car allowance is decoupled from the paycheck.