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Many companies struggle with overpaying on mileage. It can be difficult to know how to control your mileage spend without devoting hours and hours to it. If this sounds like you, then a Fixed & Variable Rate (FAVR) plan may be the perfect solution for your company.

A Fixed & Variable Rate reimbursement plan is a tax-efficient method for reimbursing employee business mileage. While the majority of companies use the IRS standard mileage rate, FAVR could be a more precise alternative and better option for your company.

FAVR is a tax-efficient, IRS-compliant program that means less money leaves your company’s account. A FAVR plan reimburses employees who use their car for business purposes based on fixed and variable vehicle expenses, which are then paid out in periodic payments.

Let’s review what FAVR is exactly, so you can decide for yourself which reimbursement plan makes the most sense for your company or department.

Here is what we discuss in this guide:

  • What is a Fixed & Variable Rate program?
  • How are employee reimbursements calculated under a Fixed & Variable Rate program?
  • What is the difference between a Fixed & Variable Rate and the IRS Standard Mileage Rate?
  • Why would you choose a Fixed & Variable Rate plan over a Cent Per Mile (CPM) program?
  • Is a Fixed & Variable Rate program right for your business?
  • How can I implement a Fixed & Variable Rate program at my company?

What is a Fixed & Variable Rate program?

A FAVR plan reimburses employees who use their own car for business purposes, based on a combination of mileage reimbursement and a monthly allowance. This includes both fixed and variable vehicle expenses, which are made in periodic payments to employees.

The fixed payments cover the fixed costs for depreciation, insurance, registration fees, and taxes. The total costs for these expenses are calculated and then adjusted to reflect the percentage of time the vehicle is used strictly for business.

The periodic variable payments cover variable costs, including fuel, oil changes, tires, and routine maintenance. When using a FAVR plan, your employees are typically reimbursed on a non-taxable basis.

Curious to see if FAVR is right for your company? Get in touch with sales today.

How are employee reimbursements calculated under a FAVR program?

This reimbursement plan combines fixed and variable costs.

The fixed payments cover the fixed costs for depreciation, insurance, registration fees, and taxes. The total costs for these expenses are calculated and then adjusted to reflect the percentage of time the vehicle is used strictly for business.

The periodic variable payments cover variable costs, including fuel, oil changes, tires, and routine maintenance. 

When using a FAVR plan, your employees are typically reimbursed on a non-taxable basis. Everlance will work with you to develop and implement a compliant, tax-free FAVR reimbursement program that achieves your company's budgetary objectives.

What is the difference between FAVR and the IRS Standard Mileage Rate?

FAVR allows businesses to offer a more accurate reimbursement plan when it has mobile employees who are spread out in different states. By customizing a specific rate to different regions, it takes into account the higher or lower fuel costs and other car expenses. For instance, operating a vehicle in New York or California costs more than doing so in the Midwest. By addressing these price differences, it avoids over- or underpayments when reimbursing employees.

Businesses who use the Standard Mileage Rate to reimburse their employees is more straightforward, but it doesn't address the fact that vehicle expenses vary by region,  especially fuel costs, which are rapidly changing. In this case, employees could be spending more on business travel than they’re being reimbursed for. Or, they could be reimbursed too much, if gas prices have fallen.

Curious about the standard mileage rates in the past few years?

You can learn more about them here: 2018, 2019, 2020, and 2021.

Why would you choose a Fixed & Variable Rate plan over a Cents Per Mile (CPM) program?

FAVR has lots of cost-saving potential. Think about it: a standard mileage rate means that if you have employees driving in Dublin, Ohio, and New York City, NY, they’ll still get reimbursed the same rate even though the cost of insurance, maintenance, and gas is different in each location. 

A FAVR program would mean that you would likely pay out less money overall while still reimbursing employees a fair amount.

For more information, visit Fixed & Variable Rate (FAVR) Mileage Program.

Is FAVR right for your business?

Before you make the switch, it's important to ensure your company meets the requirements. Specifically, it’s for any company that has mobile workers driving more than 5,000 miles for business on a yearly basis.

Some examples of businesses who may benefit from using FAVR include sales executives or consultants who need to drive regularly to meet with clients, home healthcare workers who make patient visits, or restaurants and food service companies that offer delivery services, amongst many other types of businesses.

The IRS guidelines for this program can be found here. Whether your company utilizes FAVR or the standard mileage reimbursement rate, it’s smart to have your employees accurately and automatically record all of their business mileage and vehicle expenses.

Curious to see if FAVR is right for you? Get a customized quote.

How can I implement a Fixed & Variable Rate program at my company?

If you’re ready to simplify mileage reimbursements, it’s time to update your program.

Once you look at the other options out there, we’re confident you’ll be interested in Everlance Business. We’ve combined our intuitive app with a powerful admin dashboard; this means that your whole team is sure to love it.

Setting up a FAVR program with Everlance is easy as 1-2-3:

  1. An administrator creates an account and invites the team.
  2. Team Members download the Everlance app and decide on their tracking style.
  3. You’re ready to go! 

Ready to get started? Get started for free today.

Schedule a Meeting with the Everlance Team