The mobile workforce is more like a mosaic than a homogenous group, fulfilling jobs in healthcare, maintenance, construction, consumer goods and much more. By 2022, an estimated 1.87 billion people globally will be able to call themselves mobile workers, making it more vital than ever for businesses to understand how much they’re paying in travel costs.
The term ‘business travel’ typically conjures up images of airport terminals, hotel rooms and rental cars, but many employees who count themselves as members of the mobile workforce aren’t doing these big corporate business trips. Instead, they’re traveling daily by vehicle in their home city or surrounding areas. Unfortunately, most cost analyses of travel costs don’t focus on these workers, opting instead to report on the costs associated with antiquated corporate travel (you know, the kind of business trips that are being replaced by Zoom calls).
So, we wanted to walk you through how to calculate daily average travel costs for your mobile employees. Determining the average cost of business travel per day for your company is helpful in budgeting, setting per diems, determining cost-cutting areas and spotting inconsistencies.
How to Calculate Your Average Cost of Business Travel Per Day
Step One: How Are You Paying
There are a few ways a business can handle travel expenses.
Per diems: These are like a daily allowance that a company gives an individual each day. Per diem literally translates to “per day”, in fact. per diems are usually set by the employer and cover specific things such as travel or meals. Their biggest benefit is that they eliminate the need for employees to submit expense reports that employers must verify.
Car Allowance: This is a fixed-amount that companies give their employees to cover the expenses of using their own vehicle over a period of time, usually monthly. It’s intended to cover the costs of owning and operating a vehicle such as maintenance, insurance, fuel, depreciation and more. Like a per diem, a car allowance eliminates the need for travel expense reports.
Mileage Reimbursement: This method for paying for employee travel calls for employers to reimburse employees at a specific rate for each mile driven. Therefore, employees must track their mileage (usually with a mileage log) and submit an expense report that employers must verify. Mileage reimbursement programs also necessitate determining a mileage reimbursement rate. Each year, the IRS sets a standard mileage rate to make this easy for businesses. This method is the most accurate way to handle employee travel, though it requires a bit more work.
Even if you opt to institute per diems or a car allowance, calculating daily travel costs is still an important step in figuring out how much money to allot to each mobile worker to cover their costs. And, if you already have a mileage reimbursement process, then you have an advantage when it comes to calculating daily costs over those businesses that are not tracking employee mileage.
Step Two: What Are They Driving?
There are essentially two ways your employees can be getting around. They’re either using their own vehicles, or they’re using company owned vehicles.
Company vehicles come with their own unique costs: the initial investment, long-term maintenance and registration and insurance fees. Company cars, like any other car, will also depreciate in value the more they’re driven, and all that travel is probably not strictly business-related if we had to hazard a guess. If you have your own fleet of company vehicles, then you probably aren’t tracking employee travel – at least not for the purpose of reimbursement – but knowing how far they’re going each day and where exactly they go has plenty of benefits, such as assessing time management or when to perform regular maintenance.
If your mobile workers drive their personal vehicles, then it’s important that you are compensating them for doing so, even if it’s not always mandated. If you reimburse mileage, then employees should be tracking their work-related travel. If you choose to provide an allowance, tracking the average amount of travel should still be a part of determining an appropriate number.
Step Three: Mileage
When calculating the average cost of business travel per day, mileage is one of the most important parts of the equation. When collecting this data, there are a few things to keep in mind. First, make sure you’re determining the average mileage employees travel using a good representative sample. Using mileage numbers gathered during the holidays probably won’t be representative of travel the rest of the year, for example.
Second, make sure the mileage gathered is related to business travel only. Typically, employee mileage is gathered by recording odometer readings, so parsing out which of those miles were work-related and which weren’t isn’t always an easy task. Maybe they stopped by the post office on the way to their next appointment, and the miles from this detour just get wrapped up in the total mileage. It can be heard to know for sure when you’re tracking mileage manually.
For employees’ personal cars, it may be easier to determine the total number of miles driven each year by employees, and then determine what percentage of that travel was actually business-related. This is because you need to determine what percentage of other costs of owning a vehicle your business is responsible for.
Step Four: Miscellaneous Costs
There are many other costs associated with owning and operating vehicles. These can include:
- Gas
- Maintenance, repairs and tires
- Insurance
- Licensing and registration,
- Car loan payments and financing
- Depreciation
In fact, the IRS considers all of these extraneous expenses when they determine the standard mileage rate each year. You can also factor all of these costs in as well when calculating the actual cost of travel for your employees.
AAA’s 2020 Your Driving Costs survey – which analyses fuel, financing, depreciation, maintenance and other costs – found that the overall average cost to own and operate a new car is $9,561, which is $279 higher than the previous year. Of course, if employees are using their personal cars, you need to determine how much time they spend driving for work versus personal travel, and calculate that into these costs.
Other costs you may need to factor in include meal and entertainment costs, parking fees or road tolls.
Step Five: Calculate!
Okay, it’s time to put everything you’ve learned together to calculate the average cost of business travel per day.
(% of business-related miles) x (misc. car expenses) ÷ 365 = average daily cost of business travel.
If you use the standard mileage rate, then you may simply replace miscellaneous car expenses with this rate. If you have company cars, then you should substitute your own costs of owning and maintaining a single vehicle in the equation.
Don’t Like What You See?
Your initial calculations might not be what you wanted to see, but there are several ways you can lower employee travel costs. By giving more attention to tracking travel, you can help your mobile workers manage their time better, schedule more efficient and faster routes, improve mileage reporting procedures and implement clearer travel policies.
Technology can also be an ally in lowering travel expenses at your company. SureMileage by CompanyMileage takes a novel approach to tracking business mileage. Instead of requiring employers to verify odometer readings after the fact, we calculate mileage reimbursement is based on the fastest route between point A and point B. This not only provides employees with the best route for their trip, but it eliminates occurrences of personal travel mileage sneaking into trip totals and improves overall accuracy.
SureMileage also automates the approval process for travel expense reports so reimbursements are issued faster. It only takes employees a few minutes each day to submit trips for approval, and tools such as an integrated Address Book and Quick Capture make reporting mileage that much easier.
If you thought that per diems or a car allowance was the easiest solution to dealing with out-of-control travel costs, CompanyMileage will cause you to reconsider that opinion. We save our customers 20-30% on mileage reimbursement expenses, with some saving even more. Request a demo today and finally get visibility into business travel costs.