At the NBWA’s 10th Annual Next Generation Success in Leadership Conference, nearly 250 emerging leaders in the beer distribution industry came together to network with and learn from peers.
That included the best practice session “Get More for Your Money by Transitioning to a Vehicle Reimbursement Program,” featuring LJ Del Papa in conversation with our own Caitlin Collord.
LJ got his BBA at Baylor University in 2018. He previously worked for Ben E. Keith Beverages in Dallas and Waco, as well as Gold Coast Eagle Distributing in Sarasota, Florida before joining his family’s company, Del Papa Distributing, in Texas in June 2021.
Shortly thereafter, the company started considering a switch away from monthly car allowances for key parts of their sales and leadership team driving personal vehicles for work. LJ shared the details behind their decision to move to a Fixed and Variable Rate (FAVR) reimbursement program and reflected on their transition, including:
[.866][.blue-line]The bottom line is it was a win-win.[.blue-line][.866]
The FAVR program both saves their company money and puts more money into employee's pockets!
You can watch a full recording of a session here (23-minute video). For those who prefer to read, below is a transcript, edited for clarity and length.
To receive a copy of the slides, please enter your email here.
LJ: For a little more context, this is my second Next Gen Conference ever. Coming to this conference last year, I didn’t really have any knowledge of what a FAVR program was. So if there is anyone in this room that has that same feeling of really not even knowing what the topic is, don't worry. I was in your shoes and here we are 12 months later with a great partnership.
The people that were in the position to make these decisions, they were already researching behind the scenes – is there another way to do what we were already doing, but not necessarily in the most efficient and accurate way? Do we want to switch from what we're currently doing to a more structured plan?
What we were doing was a monthly allowance plan for anyone that was not in a company-owned vehicle. We have a separate tier for our higher level sales, as well as all of our Coordinators, Managers, Leadership and they were on that allowance program. It was an estimate of the miles that our people were driving and reimbursing them what we thought was fair.
We also have company-owned vehicles that our field sales team drive, and even though we’re partnered with the FAVR program now, we still do have those company vehicles that certain reps and employees drive.
LJ: What worked about it was: Employees were reimbursed for what we perceived to be a fair rate. That’s their miles driven as well as reimbursement for gas and wear and tear on their vehicle.
Some of the challenges that we faced were:
Us as a company, we weren’t in the position to come up with a tax-free program where we could pay our employees tax-free dollars.
So that's what led us to start considering, “Hey, is there a better way to do this?” Are there tax-free options out there to where every dollar that our employees receive for their mileage they can keep? And that led us to start exploring FAVR programs.
The advantage to Everlance, and there’s probably other FAVR programs that have this as well, but it provides a tax-free option. Now every dollar that they receive in reimbursement for their mileage they get to keep.
Caitlin: Yea, the disadvantage of the mileage allowance is that tax waste. That money wasn’t in the pockets of Del Papa and it wasn’t in the pocket of the employees; it’s in Uncle Sam’s. With a FAVR program, the idea is that it's 100% tax-free so all of those dollars are kept in employee’s pockets.
LJ: The key voice at the table in making these decisions was our Vice President of Operations, Eric. He was the one already doing research on FAVR, on other programs out there. We were actually really close to making a deal with another program.
But I think it was at NBWA Las Vegas last year where our owner found the Everlance table and started engaging in conversation. Then he reached out to Eric and said, “Hey, I think we need to consider this option.”
So we went back to the drawing board and ultimately decided that Everlance was the partner that best fit not only the needs of our company, but the needs of our employees as well.
Eric worked really closely with Caitlin over these last 12 months to really fine-tune a program that fit our needs, what we were looking for as a company.
LJ: Our #1 intent was to be fair to our people.
They're driving a lot of miles on behalf of our company. Our company and our territory, we have 17 counties. From tip to tip, that’s about 400 miles of territory that some guys are having to drive on a weekly basis just to cover their area. So we wanted to be fair, to reimburse them for all those miles that were driven.
Our goal really is to have the employee that's driving on behalf of the company net as close to $0 as possible for use of their vehicle. So that includes their car payment, gas, mileage, wear and tear. That was what we were aiming for.
As I already touched on, we also wanted it to be tax-free. The dollars that were going to the employee, we wanted them to keep for the purpose of their vehicle.
And then also to get true mileage. Like I said earlier, our allowance system that we had before was more of just an estimate. We had an equation that we typed up, but there was no way to know that it was truly accurate, and whether we were overpaying or underpaying.
With the FAVR program, that math’s already done for you. And it is accurate to the mile with the use of the app.
Finally, a user-friendly platform. Something that is easy to implement with our people. Across 300 employees that are in the field every day, you want something that’s easy, that we can communicate quickly.
Caitlin: This is actually a slide from one of our meetings with Del Papa. One of the cool things about the FAVR program, and particularly how Del Papa chose to roll it out, was to lay all the cards on the table. Telling employees – this is what we're basing reimbursements off of and this is what you're gonna get. This is what goes into it and these are the program benefits. It's not just about the benefits to the company either. They were clear about those too, but it really was meant to be a benefit to the employees.
LJ: One of the concerns that we really wanted to make sure we had right was that variable cost – what factors are going into that variable cost that are going to be reimbursed to our people every month. A previous complaint or voice that was heard from our employees was that they were making a different rate every month in their allowance. Everlance was very clear and very helpful in helping us tailor a program that best fit our company’s needs and what we were looking for.
One special request, if you will, that we had:
There’s two factors to a FAVR program. There’s a fixed rate the employee is going to get every month, those dollars are not going to change. Then there’s the variable costs, the variable rate that goes with that. That’s the miles, the gas, the wear and tear, the type of vehicle you drive, etc. Normally the fixed rate and the variable rate go together. They’re made as one total payment every month.
For us, we requested that we pay the fixed reimbursement on the first of every month, and we pay the variable on the 15th of every month. So our employees are getting, on the first of the month, their fixed amount. This rate’s not going to change, you’re getting these dollars. On the 15th, you're getting a second payment. I think some of them think of it as a bonus, but it’s really not. It’s just the variable rate of the miles you drove last month getting paid.
That was one thing that we wanted to make sure we had right. That those variable factors that they were getting back on the 15th were accurate.
Another thing we wanted to make sure we had right was communication about our insurance compliance.
For everyone here, I'm sure you have certain insurance requirements for anyone that drives on behalf of your company in order to drive compliant. What we failed to do initially was clarify that part of the deal. We always required anyone that drove on behalf of our company to have certain insurance for compliance, but we did not ever follow through on checking if they actually had it. We just learned that through implementing Everlance.
So employees started coming back and saying, “Hey, Everlance is asking me to get new insurance.” Well no, it's not Everlance, it’s us. We already required you to have the insurance, we just never followed through to check if you actually had it. Something we learned to be more clear on moving forward.
LJ: It was relatively smooth. A lot of communication went on on the front end before we implemented. Caitlin was not just meeting with our CFO and our Operations Director, but she was in a meeting with the sales team. A lot of communication went out on the front end of “Hey, this is gonna be what's coming. Here's how the app works.”
The app is really the thing that makes it so smooth. We all have smartphones now. We all know the need to keep up with technology and how much better it is to have an app that is easy to use.
With Everlance, the app is probably the best feature. It's like Tinder. You swipe left if it’s a personal trip, you swipe right if it's a work-related trip. It can’t really be much easier than that.
Then all those work-related trips add up to the dollars you get reimbursed. The user-friendliness of the app is a huge win, not only just for me, but for any of our employees to get onboard with.
One more feature I’ll point out about the app is, it's not like you’re clocking in and clocking out every time you drive. The app, when it can detect you’re driving, will automatically start tracking that trip for you. You don't have to remember “OK, I’m getting in my car, I’m going to my next account, click start.” That's not how it works. It automatically starts and stops whenever you get in the car or you get to the next account. It can track you stopped moving, we’re stopping this trip.
Just wanted to lay that out there because I know it can be annoying if I’m merchandising, I’m on my way to my next store, I have to clock in and out at every account. That’s not how it works.
There were some general hiccups that came with using a new app and using new technology. A specific part of our territory is pretty rural, so sometimes dropped coverage. It would have trouble tracking those trips. Sometimes they would start but they would never end. Or you're leaving the account, it’s in a rural area with no coverage, the trip wouldn’t start. So we had to work through that a little bit, but reporting it back to Everlance and them continuing development on their side, we really don't have any of those issues anymore. We can go back and track it pretty easily.
As well as just some guys not really remembering, was this a personal trip or a work-related trip. For me, I usually wait until the end of the day or the end of every two days to swipe right or left on my trips. But it just takes giving a little more attention to the map that is really not too difficult.
Those are a few of the hiccups that we ran into that we can learn from, but other than that implementation was relatively smooth.
[.quote-wrap][.quote-top][.quote-top]Just to toot Everlance’s horn a little bit, they've been a really great partner, really faithful partner. They follow-up on everything they say they're going to do. They really hear our requests, the requests of our people, our sales force when they were on our calls, and tailored a program that best fits our company’s needs. There's other FAVR programs out there, but I'm pretty biased.[.author-attribute][.is-ljdelpapa][.is-ljdelpapa][.author-facts][.author-facts][.author-bold]LJ Del Papa, [.author-bold][.author-pos]Sales Consultant for Del Papa Distributing[.author-pos][.author-attribute][.quote-bottom][.quote-bottom][.quote-wrap]
LJ: Like I said, it's been really easy to learn.
For the most part, smooth implementation as far as employees were willing to receive it. One quote my dad loves to say is, “People are resistant to change as soon as it starts to affect them.” So whenever you tell people we’re going to be switching things up, they consider it as one more thing you have to do.
But once you train them properly, they go through a week with it, then they're used to it. Especially once they realize, “Oh, all I have to do is swipe? I don't have to physically write down my miles anywhere anymore?” They appreciated that.
From a company perspective, we realized we are getting the most accurate data as far as their true mileage. We can see, with the geolocation, where they're driving from and where they're driving to. We can see when they stop driving, what time they're starting their next drive. It just provided us the most accurate data possible to help us hold our employees accountable to the miles they’re driving.
This is a quick slide I wanted to provide with a small sample of 12 employees. You’ll see in this far right column what the company savings are versus the employee benefit. You’ll notice the employee benefit is pretty significant because remember, all those tax dollars are not being taken out. These are dollars the employee gets to keep.
[.866][.blue-line]So not only is our company saving money by this program, the employees are walking away with more money than they had before too.[.blue-line][.866]
Just wanted to provide some data to back up our success with this program.
LJ: We probably could have handled the communication a little better on the front end, especially what the factors are for the variable rate that people are getting paid back on the 15th. There's still the question raised of “Hey, what I got paid on the 15th of this month is not what I got paid on the 15th of last month.”
It just takes a conversation to bring that clarity back to “Hey, these are the factors that go into that variable rate. Yeah, you drove about the same amount of miles, but the gas price went up by 20 cents, so there’s a difference there.”
LJ: One, be educated on a FAVR program and how it best fits your company’s needs. Because every company is different. Everyone runs a little differently and you may be in a position where you just want to roll your merchandisers out on it, or you just want your salesforce out on it. So that’s one thing, just being educated on the FAVR program and what needs you have in your company for it to fit that.
As well as being educated on how the fixed rates and the variable rates are calculated. Especially the variable rate because, again, everyone’s geography is different, vehicles are different, employees are different. I think there was some tweaking we had to do between us and Everlance just to make both parties agree on, “hey, this is what we want and what we think is most fair to our people to get back.”
LJ: I think we're all trying to modernize, keep up with technology, keep up with the times.
Going back before we were even considering the FAVR program, we had already automated our warehouse. We are looking at expanding that automation across our other warehouse, as well as just expanding our warehouses altogether and the technology inside there.
Specific to delivery, we've been testing Rehrig delivery systems for about the past year and a half. Looking to expand the Rehrig delivery system as well, which is making delivery more efficient in the store. Our goal is no more than 2 or 3 points of contact from the truck to the shelf as far as getting a package off the pallet.
Caitlin: Long answer short, it’s tax-free because the IRS says it is. They really only have 3 tax-free options out there:
LJ: I don't think it was too difficult because they knew they were going to get reimbursed. Like I said before, our intent is to have them net zero dollars. So every dollar they get back from us, that they were getting back for their personal vehicle, they could use toward the personal vehicle. Or say it was more than they needed for their wear and tear, gas, etc. those are just extra dollars they get to have. So they felt pretty confident that they made the switch over, they were gonna get reimbursed fairly and appropriately. I don't think there was much push back in that regard, to my knowledge.
LJ: Really no requirement on the type of vehicle. The appropriate term that we use for all our employees that drive on behalf of our company is that it’s a “reliable” vehicle. It’s not just a clunker that’s going to break down tomorrow.
But when someone is signing up for Everlance, you do clarify the car model, the car year, and a pretty detailed description of the vehicle you’re driving. That way Everlance and us can be aware of what you're driving.
Caitlin: And you could withhold reimbursement if someone is driving a vehicle that is grossly inappropriate for them to be driving. You can withhold part of the reimbursement that is reimbursement for their car. You can still pay them for all their variable. But that's a way to help protect your brand identity, really just depends from company to company. But you are able to collect that information and then make sound decisions to say “Yes, we want you to be driving a crossover. You're driving a nice full-sized sedan, that’s OK.” And make those choices.
LJ: There is a reporting platform. I don't have access to it because I still have to submit my statement each month. But I submit my statement and it goes into a report that’s viewed by my boss, my coordinator. He can look back and approve or confirm these are the miles that were driven. They have any questions, they can ask you on it.
We haven't really had any issues with that outside of an employee forgetting to submit their report on the last day of the month. But it's very transparent.
They can see when I get to an account and when I'm starting the drive to the next account. So they can pretty much do the math in between the minutes to know how long I was at the account.
But if say I’m at an account and I decide to eat lunch there one day, I probably will add that or describe that somewhere. If you swipe left it’s personal, if you swipe right it’s work, or if you swipe even further right it’s “Other.” In the “Other” I think there's an option for lunch break or something like that. I know the one I use most often is “Commute,” so when I'm driving from my
LJ: Specific to our company, we still have all of our basic sales field reps drive the company-owned vehicles, as well as merchandisers with certain permission based upon where they live.
We have a separate tier for our higher level sales employees. They’re who’s on the FAVR program, as well as any of our Coordinators, our Managers, any of our leadership team that are having to go between three branches of the company. That's how we distinguish it, I know it might be different for everyone. We have today those company-owned sales rep vehicles, and the higher-level selling that we refer to, they're on the personal vehicles.
If a vehicle becomes available or if there’s vehicles in the yard that aren’t assigned, we’ll give the option: you can have the company vehicle, which a lot of people consider as a perk, or you can do the reimbursement option. Then we lay out “Hey, we’re part of a FAVR program. Here’s how you get reimbursed.” Just communicating that if you do opt for a personal vehicle and that reimbursement, we will pay you fairly and here’s why.
Say it’s a new employee, the term that’s appropriate that we’re allowed to ask them is, “Do you have a reliable vehicle for work?” That’s a way of them confirming to us, if they did choose to use a personal vehicle, it’s reliable. But the dollars that we're paying them, as far as if their car breaks down or they get a flat tire, it covers the wear and tear, it covers the maintenance. That's why the payout is as significant as it is. Our intent is to make the net dollars they have to spend on their vehicle as close to zero as possible.
LJ: Well, our company is very unique in that we no longer allow hot shots in our company.
Kind of a different conversation, but we no longer do hot shots. They have to have special approval from our Retail Service Director for that. So that in and of itself limits the amount of miles they’re driving, right? How often do we get calls on Friday saying, “hey, I need 15, 30 more cases at this bar 40 miles away.”
Before we were even consulting Everlance or a FAVR program, we’d already made that decision. These are needless hours our people are having to be on the road. Let’s eliminate hot shots all together.
Caitlin: This is an IRS program, so these are rules and parameters that are set forth by the IRS. So what the variable costs are meant to cover is based on the cost of operating your vehicle, like oil, maintenance, tires. The biggest lever that is pulled is fuel, so as gas prices change, one of the initial communication hurdles was the variable is going to be retroactive one month.
As you are beginning of November, they are going to be getting their reimbursement from October. If gas prices shot up a ton the first 10, 15 days of November, you might be thinking, “why is my reimbursement not equal to that?” It's always gonna lag one month, really to the benefit of the employee and the employer, encompassing what was the actual gas price for October. But the biggest lever is gonna be what are the fuel prices.
Not only what are the prices of all these things, but what are the prices in your region? How much is gas in Texas versus Ohio? Doesn’t snow in Texas, snow in Ohio – I've got probably a lot more wear and tear on my tires than someone in Texas or Florida might have, so I've got to reimburse accordingly. Especially if I’m someone who has locations and counties that might span other states.
LJ: And when the variable cost does get paid out on the 15th of each month, we’re not talking necessarily drastic changes. I think if the gas price changes 20 cents in a month, that only equates to a penny in the variable cost. It’s not huge changes, but definitely ones that can be noticeable.
Caitlin: Not at the individual level, but at the program level. Costs are based off the vehicle that we’re reimbursing off of. Del Papa, for example, we have a couple of different programs for them. They've got a certain vehicle that is their manager program and they've got a certain vehicle that is their sales rep program. Those vehicles are different. You could use the example of a truck vs. a sedan. That is taking into consideration, what is the miles per gallon on that vehicle? What does gas cost? All of these costs are based off of whatever that plan vehicle is.
LJ: Not right now. There’s still a need for that in our fleet. I can see us cutting back on the number of vehicles we do own once they get to a certain year or mileage. That’d probably be a better question for our President of Operations, but I know that there's no immediate plans to eliminate it altogether.
LJ: We haven’t had that yet at our company. No one in our company is driving an electric vehicle.
Caitlin: Right now the IRS code doesn’t distinguish between electric and gas. That could change it as it becomes more prevalent.
But the idea behind a FAVR program is that you're reimbursing your employees based on the plan vehicle. If they choose to drive electric, if someone won the lottery and they want to drive a Mercedes, that could be their prerogative. It's not at the cost of the company to say, “Oh, I've got someone driving this vehicle, I've got to explicitly reimburse them differently.” It’s really the standard is what you’re reimbursing.
To learn more about how FAVR works, please check out our guide on How to Save on Employee Mileage Reimbursements. Or answer a few quick questions about yourself, and we'll be in touch.