Here’s the Employer’s Guide to Business Mileage Reimbursement
As a small business owner, there’s a lot to navigate when it comes to mileage reimbursement. If you have employees who use their own car for work purposes, what are the best practices for mileage reimbursement? Small businesses can use below as a guide, or GPS, for showing them the way on how to adequately compensate for business mileage.
2019 Standard Mileage Rate
Each year, the IRS sets a standard mileage rate, which is the rate for mileage reimbursement when using a personal vehicle for business purposes. In 2018, that rate is 54.5 cents per mile. The 2019 standard mileage rate for business is $.58 per mile driven for work. This rate is a guideline based on the fixed and variable costs of operating a vehicle, including gas, maintenance, insurance, registration, and depreciation.
The IRS sets this rate for two reasons:
- To provide employers a fair rate for compensating their employees when they drive their own personal vehicles for work-related purposes.
- To give employees a rate which they can use to deduct mileage on their income tax return, only if their employer doesn’t reimburse for this expense, or doesn’t reimburse the full amount.
Do Companies Have to Reimburse Employees for Business Mileage?
While the IRS mileage rate is just a recommendation, it’s up to each individual business if they decide to use this exact rate, or reimburse their employees at a mileage rate that is more or less than the federal standard.
Depending on the state your business operates in, you may not need to reimburse your employees at all for using their own car for work. In that the case, your employees would use the standard mileage rate to deduct their business mileage when filing their personal taxes.
As there are different roads to take when deciding if, how, and how much to reimburse your employees for business mileage, let’s discuss the small business best practices surrounding this subject.
Reasons to Reimburse for Car Mileage
Depending on the state your business is located, whether or not you pay your staff back for business mileage may not even be a question – it may be your state’s law. Both California and Massachusetts both have laws that say businesses must pay their employees for work expenses such as business mileage. Therefore, it’s best to check your own state’s labor laws to see if it’s a requirement.
Even if your state doesn’t require it, it’s still a good idea to implement business mileage reimbursement as part of company policy. Employees who use their personal cars for work will appreciate not having to dig into their own pockets for the costly expenses that come along with it, such as gas, repairs, and insurance.
If you have employees who are paid minimum wage, or close to it, and use their own car for business reasons, here’s something else to consider. If their travel expenses decrease their earnings below the applicable minimum wage, their employer is responsible for making up the difference. However, if this employee is getting reimbursed for their business mileage, then this would not be a concern.
As a business owner, all reimbursements paid to your employees for business mileage is a tax-deductible expense for the business itself. Therefore, there is not much to lose by paying your employees back for this expense, and you have plenty to gain – most importantly, employee satisfaction and retention.
Should You Use the Standard Mileage Rate or a Lower/Higher Rate?
As the IRS rate is based on average gas prices, ordinary vehicle wear and tear, and the average costs associated with repairs, they are just that – averages. Obviously, all of these costs vary in different parts of the country. Therefore, a company based in New York or California may consider offering a higher mileage compensation rate, then a business located in the South or Midwest. However, if your business uses a rate that exceeds the federal standard, the excess received by the employee would be considered wages that they’ll need to pay taxes on. On the opposite end, if your business uses a lower rate than the standard one, then your employees can deduct the rest on their income tax return.
Whether your company decides to take the standard rate route, or take the road of going higher or lower, you are still following the small business best practice of reimbursing your staff for business mileage, and therefore, keeping your employees happy.
How to Reimburse Employees for Business Mileage?
For employees to get reimbursed for business mileage, they first need to track their miles and keep accurate reports on the distance driven. This is where Everlance, the #1 business mileage tracker app, can help. Sure, your staff can keep a manual log every time they get in their car to drive for work-related purposes, then fill out an expense form when they return to the office, and submit accordingly. But a mileage tracking app, such as Everlance, handles all of this for them, saving a ton of time and hassle.
Once Everlance is downloaded onto your staff’s smartphones, they’ll just swipe left or right to categorize the trip as business or personal, then the app will automatically track mileage, keep a record of it and calculate the deduction. Then employees can submit compliant reports to their employer for reimbursement.
Your employees can also use Everlance to track all their business expenses, not just mileage. From parking fees and tolls, and all other costs, they can enter each one into the app manually, or digitally by capturing the receipt with a photo.
Being able to streamline employee expense reporting and reimbursements is more efficient when expenses are recorded digitally in real time. As employees enter their mileage and other expenses into the system, it can be integrated with the company’s payroll system so employees can receive their reimbursements quickly in their next paycheck, as a separate check, or direct deposit into their bank account.
Everlance is 100% IRS-compliant, so if your staff is using Everlance Teams to track their mileage and other expenses, you can have peace-of-mind that expense records are being kept safe, organized, and accurate, eliminating room for error and mistakes.
Now that you have the full roadmap on business mileage reimbursement, you can keep your business moving along in the direction of employee satisfaction and other business best practices.