If your company has a vehicle program that reimburses employees for using their vehicles for work, you must decide who will handle those reimbursements. Should you do it in-house or outsource it to a specialized provider? 

Companies that try to do it in-house often face challenges they had yet to anticipate, such as complex tax compliance and building a robust infrastructure to guarantee timely and accurate payments. Whether you are about to launch a vehicle program or are already administering a program, it’s never too late to evaluate what's best for the administrative team and your drivers.

From implementing specific workflows to staying on top of tax liabilities, there is much to consider to efficiently manage the reimbursement process, save time, and guarantee your employees fair, timely reimbursement. 

1) Mileage reimbursement requires different workflows than payroll 

Mileage reimbursements require distinct workflows from payroll. Coordinating reimbursement approvals, payment schedules, and department hand-offs introduces vulnerabilities if not carefully orchestrated. 

If controls are not robust enough, even minor issues like a delayed expense report or a missed approval can create bottlenecks, resulting in missed or late payments. Beyond payment impacts, this process's fragility can impact driver morale or retention.

Not only does this risk your drivers not getting paid on time (or at all), but most payroll systems are designed to treat all compensation as taxable by default. Handling mileage internally through payroll risks incorrect taxation unfairly burdening drivers.

By outsourcing to a specialized provider, you can guarantee your mileage reimbursements will be processed currently and without accidentally penalizing your drivers.

2) Tax compliance is complex to administer

Vehicle reimbursement programs have ongoing requirements around tracking mileage, calculating reimbursement amounts, and determining taxable portions - if any. Beyond just making sure reimbursements are not processed like wages, staying compliant with all of the applicable IRS regulations can be a full-time job. 

Take a Fixed and Variable (FAVR) program, for instance. A FAVR program has certain monthly fixed and variable costs considering the cost of an employee’s personal vehicle usage. 

To help determine the taxability for FAVR, you'll need to apply the Safe Harbor test. That means multiplying the current IRS mileage deduction rate by the driver's work miles. If the calculated amount is less than what they received as reimbursement, the excess is considered taxable.

Outsourcing to experts helps alleviate such complex administration. Platforms like Everlance automatically calculate tax liability according to IRS regulations while simplifying the reimbursement process end-to-end. 

3) Outsourcing Reduces the Administrative Burden

Choose a specialized provider to outsource managed reimbursements. You’ll be able to reduce the time your staff spends managing reports and processing payments, which can easily rival the amount of time spent on bi-weekly payroll, which amounts to about 2 hours per week between administering tasks and employee questions.

If your reimbursement schedule differs from your payroll cadence, your team may be processing payments more often than every other week, which can turn into many wasted hours. If you choose a flexible provider like Everlance, you’ll have the option to set up reimbursements on a similar schedule that matches payroll or offload it altogether.

When using automated software, your team is freed up to focus on what they do best and doesn’t have to spend time chasing down paperwork between departments to ensure drivers are getting paid accurately or on time. 

4) Platform Scales with Minimal Effort

If your company is growing or has ambitious plans for the future, scalability is an essential factor in your search. 

As your reimbursement needs expand and diversify, you want a solution that can easily accommodate varying reimbursement rates, programs, and new coverage areas.

Additionally, those who process regular payroll in your company may be someone other than the ones who handle mileage reimbursements. You should set up an existing workflow or validation system for all parties involved to avoid friction between departments and drivers if their payment is affected. 

Instead of burdening your team and straining your resources, outsourcing your mileage reimbursement process can save you from adding extra headcount to manage your vehicle reimbursement program and future-proof as you grow.

5)Turnkey Solutions Lower Upfront Investment and Stress

Building a vehicle reimbursement program comes with significant up-front costs and time. If you’re purchasing mileage tracking but building administrative workflows in-house, going this route can be the most expensive and stressful solution.

Going this hybrid route also introduces stress, as integrating disparate tools and building complex processes from the ground up invites unexpected technical hurdles or compliance issues your team needs more expertise to resolve.

You can skip the entire hassle of setting up a fully-fledged in-house reimbursement process from scratch with its hefty price tag of staff hours, data collection tools, and more by choosing to outsource to a model with a predictable monthly or annual subscription.

Should you outsource?

When considering handling reimbursements in-house or with a provider, it’s important to evaluate the advantages and disadvantages for your team and drivers. Taking reimbursements in-house requires establishing specific workflows, ensuring tax compliance, and dedicating resources to manage the process. On the other hand, outsourcing to a specialized provider can alleviate the administrative burden, offer expertise in tax compliance, and provide scalable solutions.

Ultimately, it all comes down to what your company needs, what resources you have, and what matters most to you. Automating mileage reimbursements is one more way to simplify your internal processes, reduce risk, and ensure that your drivers are always paid accurately and on time. If you’re interested in learning how Everlance can help, you can learn more about our Managed Reimbursements product and get in touch today.

  1. How does Everlance work?