If your business has anyone on its payroll who uses a personal vehicle for work purposes, they’re entitled to compensation for their mileage.
Whether you have one person or a fleet of vehicles in your employ, your company needs a policy on how it will reimburse staff for using their car.
When calculating your mileage reimbursement rate, it helps to use the Internal Revenue Service’s guidelines as a starting point:
- 56 cents per business-driven mile
- 16 cents per medical mile or mile driven for moving purposes
- 14 cents per mile to employees driving for charitable purposes
But the IRS doesn’t account for variables, like traffic jams or the skyrocketing gas prices we’re currently seeing. If you want to show your employees you value their time, these variables should be part of your mileage policy.
Whether you’re dealing with seasonal issues or supply-and-demand spikes, there will likely be times when your default policy isn’t cutting it.
These tips will help you adjust your business mileage policies when variables affect your employees’ personal vehicle usage.
1. Know the Laws First
Knowledge of your state and federal laws is helpful. Even if you think you’ve got it all covered, when regulations change, you need to be on top of them. If not, you can end up with hefty fines or stuck in lawsuits.
If you’re paying above minimum wage, you’re not federally required to reimburse your employees for using their vehicles.
However, your state laws could say otherwise. At minimum, your business has to follow the state guidelines.
There are times when federal requirements apply. For example, if travel reduced their wages to below-minimum-wage status, you could be penalized or even sued!
Keep in mind that your reimbursement policy should include fuel costs, wear and tear, maintenance, and depreciation.
Fair Labor Standards Act (FLSA) Exceptions
Every business is unique, but the Fair Labor Standards Act (FLSA) was established to ensure employees were treated fairly across the board.
Under FLSA, a consistent minimum wage was established. Employees became eligible for overtime pay, accurate records were required, and child labor standards were set.
But another, lesser-used section discusses laws regarding travel pay.
From overtime to mileage expenses, there are some exceptions where travel pay is required.
In general, when an employee is traveling on an errand or assignment for the job, it’s compensable. Though, employers are not responsible for time spent commuting from home to work.
They also don’t have to pay for travel as a passenger on the route to an overnight work stay.
The exception to this is if any of the travel time happens when the employee is on the clock — then employers must compensate for that time.
Some other exceptions to be aware of include:
If you send your employee to another city for work and they return on the same day, the entire travel time is compensable.
Employees should receive mileage reimbursement if they drive their own vehicle for business purposes on the clock during the workday.
Although most states use the FLSA as their framework, be aware that your state’s guidelines may differ slightly.
Of course, we suggest always falling back on the compensation laws that are more generous to your employees — there are things other than mileage that can be a hit to their budget such as car wear-and-tear and repairs.
Overnight business trips require you to pay for mileage if the employee uses their own vehicle. But only business miles are reimbursable. So, for example, if they choose to run personal errands during that trip, you would not need to reimburse that mileage.
Business owners have to deal with state and federal tax laws regulating mileage reimbursement.
Your employee will have two choices for claiming mileage deductions on their income tax returns:
- Use the standard mileage rate
- Itemize all vehicle-related business expenses (gas, tolls, depreciation, etc.)
Unless they are independent contractors or otherwise self-employed, they should follow your business’s standards.
Your mileage policy should clearly outline how you handle deductions. Will you pay a mileage stipend, as in a rate-per-mile reimbursement? Or will you collect their gas receipts and reimburse them for fuel in their paycheck?
Tax deductions for mileage can get complicated. Make sure you keep all business expenses, such as gas receipts, mileage logs, vehicle maintenance records, and receipts for tolls and parking fees.
2. Consider the Driving Area
If your drivers are remote, especially in the case of business fleets, you might not be aware of what’s going on with the fuel prices in other areas. Yet, these price fluctuations impact your employees who are living or traveling through geographic fuel hotspots.
The price of gas depends on many things, including the octane level: regular, midgrade, or premium. Larger vehicles may use diesel, which is typically more expensive than premium gasoline.
When Gas Prices Are More Than You Cover
Drivers who travel a lot may prefer midgrade or premium fuel. This type of gas is more resistant to combustion and detonation, which means it’s less likely to mess with the vehicle’s engine.
Oil refiners can charge more for high-octane fuel, with a price difference between 42 and 67 cents per gallon.
While it’s not your company’s responsibility to monitor the gas prices, it is in your best interest to make sure your employees are happy.
Say your company pays the IRS-based average of 56 cents per mile, but there’s a spike in fuel prices. By the time an individual fills up their tank, they could be losing money to work for you.
Pay attention to factors that affect fuel prices, such as traffic in your city. If your employees have to idle in traffic, they’re going to burn a lot of fuel sitting in jams that aren’t their fault. The price of gas in these areas is usually higher, too, because of the basic law of supply and demand.
To be fair to your staff in these areas, you may consider adjusting your employee mileage reimbursement policies to cover their costs. An insufficient reimbursement rate could drive your workers below that threshold, setting you up for a lawsuit.
3. Use Cost Analysis Tracking
In business, it’s essential that you keep up with what’s profitable and what’s costing you too much money. In the case of mileage, tracking each driver and their personal vehicle use can help you adjust your rates accordingly.
For instance, if a driver’s vehicle guzzles gas, and you’re reimbursing based on fuel receipts, it may be more cost-effective to give them a company car instead.
Flat-rate reimbursements are easier to deal with, but they may not be the best method for you or your employees.
But, if tracking mileage is a hassle that’s keeping you from earning a profit, you might need to switch your approach.
Using Tracking Apps as a Tax-Deductible Record
Tracking apps are an easy way to measure the mileage of preset routes. Find an app that lets you program in the most commonly used routes, and it will flag and keep track of them.
Free apps like MileIQ record a driver’s mileage and send weekly reports to the office. But this mileage tracker only lets you program up to 40 trips per month unless you upgrade to the paid versions.
Other premium apps, such as TripLog, do more than track miles driven. This app is designed for businesses that need to record the number of miles driven by multiple employees in real-time. Employees can upload photos of their receipts, and the expense will automatically upload to your QuickBooks account.
4. Let the Data Drive Your Mileage Policy
Ultimately, as long as you’re following state and federal minimum guidelines, such as the IRS mileage rate, your company policy is up to you. And sometimes, the most profitable decision is to switch up your mileage policy.
As the demand for crude oil increases, so does the price of fuel. You can use this data to drive your decisions.
How Does the Price of Fuel Impact You?
Depending on your company’s mileage reimbursement policy, these fuel prices could affect you. This is particularly true if you have a fleet of vehicles you own or lease.
If you’re not paying attention to your fuel spending, you’re overlooking a major part of your budget. For companies with fleet vehicles, like rental cars, this could be up to 60% of your total operating costs.
No matter how many or how few remote workers you have on your staff, your company car program’s cost is going to increase. Depreciation and increased fuel prices ensure this.
You can mitigate the expenses by keeping up with the analytics, including mileage costs, fuel prices, and employee return.
Switching Programs: The Good and the Bad
If your current policy isn’t working, there are other options. Each of them has its own pros and cons.
Here are some of the most common company policies for individual and fleet vehicles:
With this policy, every worker who drives their personal vehicle for business use gets the same rate. It is easier to track, but it’s not fair to workers who drive more or have higher fuel costs.
Cents-per-mile policies are fairer for employees but not as easy to maintain. For example, if you don’t want to end up taxed on it, it must stay below 56 cents. These policies will require an automated mileage tracking program for accuracy.
The Fixed and Variable Rate Allowance Program (FAVR) is one of the fairest and most flexible policies. With this program, each employee’s reimbursement rate is adjusted based on their unique location, price of fuel, and mileage driven.
Although it’s fair, it’s not as realistic for companies with a lot of drivers. It requires constant monitoring and adjusting to remain cost-effective for the company and the mobile worker.
As you adjust your policies to deal with things like rising gas prices, the key is to stay flexible and to communicate upcoming changes to your employees. When workers know to expect changes, they’re more accepting of new rules.
The goal of changing your mileage policy is to increase your bottom line, but you should only do so in a way that keeps your employees feeling valued. Acting with your employees’ best interest in mind is a natural way to boost profits and reduce turnover.
5. Use Alternative Solutions
Sometimes, it’s cheaper to find alternative transportation options for your employees. Right now, we’re in an upside-down world as far as travel goes, where it can be less expensive to fly than to rent a car or drive a personal vehicle somewhere.
As a business, you may be able to get company discounts for airfare and travel expenses.
Do the Math for the Best Value
Consider the expenses of sending your employee on an overnight errand to another state in their car:
- Mileage and depreciation
- On-the-clock travel
- Tolls and parking expenses
- Hotel accommodations
- Food expenses
When your business has default travel planning partners to turn to, it can save on a lot of these factors.
Using, for example, a partner that focuses on lodging savings, like Hotel Engine. When you’re planning business travel all on your own, booking hotels falls in your lap, too. The right corporate lodging solutions can save you time and money!
You’re spending valuable time searching for a conveniently located, well-priced, clean hotel. When you find one, you have to put in your billing info over and over for each employee, because their itineraries won’t always mesh.
When you use a dedicated booking system, you can choose the default filters to select from over 700,000 partner hotels and then implement travel policies that let your teams or departments set up their rooms based on your criteria.
Having similar solutions for the other parts of travel (like transportation, food, etc.) will simplify employee travel planning and get you the best deals.
Other Tips to Lower Your Travel Budget
With mileage reimbursement at 57 cents per mile, a 400-mile round trip drive is going to cost you $456 per employee.
Chances are, it’s less expensive to fly your workers out. You’ll still have to pay for on-the-clock travel, but you’ll save tolls and parking expenses. Use this pricing formula to calculate the cost-efficiency of trains, buses, and even carpooling.
By swapping out long drives for alternative forms of transportation, your business can save thousands of dollars (or more) every year.
But if your employees must drive, consider opening a credit card for fuel that they can access. Choose a card that offers benefits like cash back or reward points. With a fleet of vehicles charging their gas costs to one company card, you’ll build up perks fast.
No matter the size of your business, skyrocketing gas prices impact your bottom line. Unless you adjust your mileage policy to account for the change, your employees are going to feel the impact in their wallets.
Your company’s mileage reimbursement program should reflect the state and federal guidelines. But even more importantly, it should show your employees that you value their time and their personal vehicle usage.