While there is no requirement in federal law to compensate employees for business use of their personal vehicles, plenty of employers do so and for good reasons. First, a mileage reimbursement policy avoids the hassles of company-car ownership and the excessive expense of car allowances. Second, mileage reimbursement policies are areas of competition among employers seeking the best-possible employees. Third, policies on mileage reimbursement prevent employees from bringing bills – or worse, lawsuits – in an attempt to recover out-of-pocket expenses.
So what should an employer consider in developing a mileage reimbursement policy? Three things: the details, the process, and the tools required to make the policy work for everyone.
The Details: Sweat the small stuff
The goal of any mileage reimbursement policy is to create what the Internal Revenue Service terms an accountable plan, one based on employees’ accounting of business-related expenses. This is important for making the payments to employees free of federal withholding.
The most commonly asked question asked in developing a policy is what the per-mile reimbursement rate should be. Here the IRS rate, published annually and sometimes more often, is helpful. Plenty of companies pay the full rate, sometimes to be as competitive as possible. But it’s not always necessary. Companies should consider two factors: their location and the type of vehicle required.
The price of fuel, insurance, maintenance and even cars themselves varies place to place. That should be a factor in setting the reimbursement rate. So too should the kind of vehicle required to do the employees’ job. A plumber needs a different vehicle than does a home-health nurse.
Employers should detail in their policies the requirement that employees have valid driver licenses and adequate automobile insurance. Then they should add as much detail as needed to cover anticipated contingencies, such as excluded activities like personal trips and commutes to and from home. There should be explanations of policy violations and accompanying discipline. Remember, the most common violations are fictitious expenses and inflating actual expenses. Finally, make it clear the policy applies to everyone from top managers to the most-junior interns.
The Process: Integrate safeguards
The documentation associated with mileage reimbursement is important not only for expense control but for claiming the employer’s own tax deduction for mileage reimbursement. Accurate documentation comes from a rigorous process that builds in safeguards, encourages questions, and includes a monitoring system that will uncover abuse. The most basic of safeguards is the requirement that employees and managers alike add their signatures to documents to certify their accuracy.
The mileage reimbursement process must remain separate from the payment of employee compensation. This is necessary in order to generate accurate tax information for the employer and to avoid the mistaken application of withholding taxes on the employee. Conducting periodic reviews and audits for compliance ensures the policy is carried out accurately and fairly.
The Tools: Embrace Automation
Mileage reimbursement represents a significant cost, and inefficient systems just add to that cost. Automating the process with CompanyMileage greatly improves mileage verification, resulting in significant savings. The singular aim of CompanyMileage is to provide employers a secure and accurate system for employees to manage mileage reimbursement.
SureMileage by CompanyMileage is an easy-to-use web-based platform into which employees can quickly enter their driving schedule. It saves time to automate mileage tracking versus traditional odometer readings and virtually eliminates inflated estimates.
To govern a business process, complete and detailed policies are essential. By using the best-available tools, employers can ensure their policies are properly carried out.