Business owners, HR executives, and payroll managers have several factors to take into account when deciding on an employee mileage reimbursement policy. Whatever plan your company implements, it should satisfy both your business’ and employees’ needs, and must also be compliant with state and federal laws. Let’s review the considerations and best practices below when it comes to employee mileage reimbursement.
Mileage Reimbursement Considerations
If your company offers all employees the same flat rate of compensation, you may expect that to viewed as fair and equal. However, some staff members may spend significantly more time and money driving than others. Therefore, failing to set up an individualized reimbursement policy to reflect that may not be fair.
Additionally, reimbursement as part of an employee’s pay rate makes that money subject to income and FICA taxes, which means less money in their pockets. If an employee feels they aren't being reimbursed fairly, they may even take legal action against your company, especially if your policy does not comply with the Fair Labor Standards Act (FLSA).
Therefore, it's essential to consider a mileage reimbursement program that takes into account each employee’s individual needs, as well as what's best for your business in the long run.
Employee Reimbursement Per Mile
One popular method of reimbursing employees is giving them a set amount of money per mile driven. The IRS provides guidelines for this method, suggesting the 2019 Standard Mileage Reimbursement rate of 58 cents per mile driven for business use; 20 cents per mile driven for medical or moving purposes; and 14 cents per mile driven in service of charitable organizations.
This standard rate is designed to uniformly reimburse employees based on average national gas prices and other expenses associated with driving. But companies may choose their own per mile reimbursement rate. Their own rate may be higher or lower than the standard rate, depending on how vehicle expenses in their area(s) of operation measure up against the national average.
Fixed and Variable Rate Reimbursement (FAVR)
An alternative to adhering to the IRS Standard Reimbursement Rate is a fixed and variable rate (FAVR) reimbursement program. A FAVR allowance factors in costs like depreciation, insurance, license and registration fees, fuel, maintenance, and taxes for vehicle owners. It also takes into account that driving is more expensive in some states than it is in others. So offering the same cents per mile to all employees regardless of location isn’t always a fair system. If you have employees driving in different regions across the country, a FAVR reimbursement program may be the better option for your business.
Implementing and Managing Mileage Reimbursement
Once you decide on the method to use to reimburse employees for their driving expenses, it is imperative to communicate with them on procedures and expectations. This requires a communication plan that educates and trains employees on the reimbursement policy, so everyone has a sufficient understanding of how it works.
Furthermore, your communication plan should also be evaluated from time to time, to determine how well it’s working and if any updates need to be made. If any changes are made, employees must immediately be made aware of how these changes will affect them.
Reimbursement Through Payroll
Reimbursing employees through payroll is a straightforward and transparent method of payment. Making payroll, mileage, and expenses part of the same paycheck simplifies payment and allows employees to know what to expect when they get paid.
Additionally, your staff will be more on top of submitting their expenses on time if they're required to do so at the same point during each pay period. This ensures that the expense tracking and reporting process goes smoothly.
Another benefit of reimbursement through payroll, is that it can lower the risk of fraud.
Everlance Business is the Ultimate Solution
Using an app to manage your employees’ mileage reimbursement, streamlines the entire process, and most importantly, saves time. Employees can automatically track their mileage for each business-related drive, and your company also saves a significant amount of time when it comes to accounting for these expenses.