Having a proper employee mileage reimbursement program in place for your business can save time and money, as well as improve compliance. It’s easy to understand this on its face, and yet we see small businesses make the same mistakes time and time again with mileage reimbursement. You know you should have a mileage reimbursement program, but how do you avoid the most common pitfalls to reap maximum benefits while staying compliant? Here, we’ll discuss the most common mistakes we see, and how to avoid them.
1. Lacking a Clear Employee Mileage Reimbursement Process
Almost half of companies with mobile employees haven’t implemented a clear process or policy for mileage reimbursement. Some companies pay out reimbursements without a mileage log to avoid upsetting employees, while others require one but may not have clear requirements for what is and isn’t acceptable to receive reimbursement. If this sounds like a mess, it’s because it is. After all, it’s hard for employees to meet your expectations when you haven’t set out clear guidelines for them to follow. Furthermore, not having a streamlined, uniform process means that you need to take extra time figuring out all the different methods your employees have cobbled together, which makes your company miss out on the valuable time-saving benefits a mileage reimbursement program can provide. A clearly-defined policy and uniform process makes things easier for all involved parties. Creating and implementing such a process saves money by ensuring that you’re paying out the correct amounts. A well-defined process also improves productivity by giving workers a clear policy to follow to handle their mileage expenses. Keeping standardized records also safeguards your employees and your small business from financial scrutiny, protecting your deductions in the event of an audit. Remember: it’s tough to have a well-defined policy and uniform process without the appropriate tools. Company Mileage tracking software can help your employees make the most of their reimbursement while maintaining detailed, accurate, easily-accessible records that can be shared with just a few touches of a phone screen.
2. Counting On Manual Mileage and Expense Reporting
Over half of businesses that do have a concrete, actionable policy in place still rely on manual expense reporting. This leads to wasted budget money and employee time, especially when it comes to mileage reimbursement. Think about it: it’s standard practice to require receipts for business expenses like hotel stays, flights, or client meals. It’s also pretty easy for employees to hold onto those receipts, or to snap a quick photo. Yet, for some reason, when it comes to mileage many companies are willing to reimburse without any standard documentation. This puts your business at risk for making inaccurate reimbursements, thereby wasting money. If your small business relies on handwritten mileage logs or spreadsheets, you’re not only potentially accepting records that have been doctored in the employee’s favor, you’re also burdening your workers with the task of manually logging every single business drive. After all, you’re not paying people for the tedious task of logging miles and filling out expense reports. Give them the right tools to automate mileage and expense tracking, so your staff can do what they do best.
3. Settling On A System That Doesn’t Suit Your Needs
It’s clear that a manual mileage reimbursement system doesn’t work. It wastes time and money and opens you up to potential compliance issues. For these reasons, many businesses choose to use a mileage tracking software for mileage reimbursements. Make sure to choose a mileage tracking software that actually suits your small business’ needs. Since mileage can be such a big problem, it’s easy to get sold on bloated softwares that don’t do what you need them to. Your buying criteria should be centered on saving your business money, improving productivity, and boosting compliance. The last thing you want to do is save money on mileage reimbursements only to lose those savings in paying for mileage tracking tools. You also want to make sure you aren’t losing productivity gains on a hard-to-use software that takes too long to implement.
4. Counting Business Expenses Twice
You can use one of two methods to calculate business-related auto expenses: you can use the standard mileage rate, or you can deduct based on your actual expenses. You may not use both!The standard mileage rate is definitely the easier of the two to track, and is the more popular of the two methods. However, if you choose to use this method, you may not deduct for things like automotive repairs or maintenance costs. The reason for this is that those major expenses are already factored into the IRS standard mileage rate, so deducting them twice is likely to raise eyebrows at the IRS and could get you audited. It’s important not to reimburse for things like car repairs and fuel costs if your employee is deducting based on the standard mileage rate when they file their taxes. You’ll need to clear this up from the beginning with participating workers, as a surprise about what can be reimbursed could turn into a negative hassle for the employee.
5. Counting Commuter Mileage as Company Reimbursable Mileage
This is important to make clear to your employees when you discuss the mileage reimbursement program: mileage from home to the office, and from the office home, does not count as business use. While this may come as a surprise to some people, according to IRS Publication 463, commutes are considered personal expenses, not business expenses. This also applies to employees who work during their commute, so that train pass or self-driving car won’t help employees accrue any more business miles for deduction than other forms of transportation. Make sure that all your employees know this before they start to track their mileage Even if it’s by mistake, reimbursing for personal mileage can cause a major headache in the event of an audit. Finding and implementing the right mileage reimbursement system is crucial, saving your business valuable time and money, boosting productivity, and improving compliance. Everlance makes it easy to track your mileage and expenses in one easy-to-use interface, creates IRS compliant mileage logs, and keeps you covered in the event of an audit.