Employee mileage rates: Are you losing money?

 Of the many, many important responsibilities of the Internal Revenue Service, one of the most significant for businesses with large numbers of mobile employees is their annual business mileage reimbursement rate. This rate, known as the standard mileage rate, is a crucial element of employee expense calculations, determining year by year an standardized rate for reimbursing workers who travel for business in their personal vehicles. 

The 2024 IRS mileage rate, as announced at the end of the last year, is 67 cents per business mile. While the decision to compensate employees for business travel at this exact rate of reimbursement is a completely optional one, many organizations opt to use the business mileage reimbursement rate set by the IRS instead of going to the effort of determining a different reimbursement rate. The IRS’s standard mileage rate is, on its face, pretty straightforward, and easier for businesses to implement. Choosing the simplest option isn’t, however, always the most prudent business decision, and relying on the IRS standard mileage rate without exploring other options could be costing your company money, depending on several factors.

 In this article, we’ll talk about those factors, as well as how mileage rates work, and options for reimbursement if you decide that the IRS business mileage reimbursement rate isn’t the best rate for your organization or its workforce.

Let’s Talk About the Standard Mileage Rate

Before we do anything else, let’s talk about the IRS standard mileage rate, and how the IRS decides how to set its rates for mileage reimbursement. The business mileage reimbursement rate set by the IRS at the end of every year is a national and annual figure based on the expenses of owning and operating a vehicle across the United States, and how those expenses are projected to change as the year progresses.

While some of the most obvious – and most newsworthy – expenses involved in owning and operating a vehicle are gas prices, pain at the pump isn’t the only factor the IRS considers when setting its national rate, or even the biggest. According to a previous CompanyMileage analysis, gas prices only account for about 30% of the cumulative costs of vehicle ownership and operation. Insurance accounts for 12%, licenses, registration and taxes for 7 percent, and 3 percent each for tires and maintenance. The biggest cost factor, according to our analysis, was overall depreciation, representing about 45%.

As this breakdown suggests, rate increase and decreases aren’t as straightforward as aligning with the rises and falls of national gas averages. The soaring price of gas did have a noticeable impact on the IRS business mileage reimbursement rate in 2022, causing a midyear rate increase, from 58.5 cents per mile to 62.5 cents, but as rates have stabilized and declined in the years since, the rate has continued to rise. At the end of 2022 the rate was raised from 62.5 cents to 65.5 cents for 2023. From 2023 to 2024 the rate increased again, by 1.5 cents. After all, even though the cost of gas is no longer skyrocketing, costs connected to vehicle operation and ownership, such as those of insurance, maintenance, and buying a new car, remain high across the country.

Now Let’s Talk About You

Or, rather, let’s talk about your workforce. 

Where Are Your Employees Located?

And let’s also, while we’re at it, talk about where they live, and what areas they frequent in their day-to-day business travel. As noted above, the rate set by the IRS is a national rate, based on averages across the country. Many of the costs of owning a car, however, are not, and many of these expenses vary based on location. 

Take gas prices, for example; They aren’t the be-all-end-all for vehicle costs, but they’re not insignificant, either. While the national average for fuel costs at the end of October 2024 was about $3.163, the cost was $2.76 per gallon in Mississippi, and $4.63 in California. These cost discrepancies from state-to-state don’t stop at fuel, either. According to Insurance.com, in California, the most expensive state in the US, the five-year cost of owning a vehicle is around $27,000 dollars, compared to costs in Alaska, the cheapest state, where the average cost of ownership is about $16,000. 

These cost discrepancies in a country as huge and diverse as ours are unavoidable, and depending on your location, they might have a direct impact on your business. Depending on where they actually are, the IRS’s rate, calculated based on national averages, may be too high to sufficiently reimburse your employees—or even, in some instances, too low! 

What Are Your Employees Driving?

Another impact on vehicle operation and ownership that can’t be predicted by the IRS business mileage reimbursement rate is that of the vehicles themselves, of which there are, you may be aware, a pretty wide variety. Some vehicles, depending on the make and model, cost more to insure, while others have more or less involved maintenance costs; the ten-year maintenance cost of a Prius averages at about $4,000 dollars, while that cost for a RAM 4500 is over $25,000. 

And then, of course, there’s gas prices. Anybody who’s ever gone car shipping is familiar with the concept of gas mileage; Some vehicles can travel for a pretty long way on a single gallon of gas, and others are what we may charitably call ‘gas guzzlers,’ which can impact the cost of using that vehicle pretty significantly. 

Consider these cost factors as they apply to your workforce; What kind of vehicle do your employees need for their work-related travel? If your business employs workers who need pickup trucks to haul materials, they’ll probably end up spending a fair amount of money on gas and maintenance. If you employ, say, home health workers who simply need an economy car to make home visits, their vehicles are likely to incur less of an expense, and you may even be over-reimbursing these employees by compensating them at the current standard mileage rate. 

Seasonality Is Also a Factor

There’s location and vehicle type, but the time of year can also impact the costs of owning and operating a vehicle. Famously, gas prices have a tendency to spike in the summer, and insurance costs can rise and lower seasonally as well. Because the IRS rate is annual, these changes won’t be reflected in employees’ vehicle reimbursement payments – unless, of course, the IRS does a mid-year rate change, but those are pretty rare. 

What Can You Do?

If you suspect that your business is spending too much on reimbursing by using the IRS standard mileage rate, it might be time to take matters (and your company’s business mileage reimbursement rate) into your own hands. First, determine vehicle costs for the average employee, which you can do by tallying various vehicle costs (mileage, maintenance, tires, depreciation, etc) or by taking advantage of resources such as AAA’s driving costs calculator. 

From there, you can calculate a better, more accurate business mileage reimbursement rate for your business and your workers. You could do this by dividing total annual vehicle operation costs by total annual mileage. For example, if a vehicle’s total cost of ownership and operation for a calendar year is $7,264 and that employee travels about 12,000 miles a year for business, the resulting figure would be 0.6053 dollars per mile, which you could extrapolate into a mileage rate about $0.61 per mile. 

Or you could use CompanyMileage’s rate calculator, which lets users calculate a working mileage rate based on the fuel price in their location. 

Rate Calculations Made Simple With CompanyMileage

Clearly, a lot goes into employee mileage reimbursement. Besides rate calculations there’s also mileage tracking and mileage logging, not to mention reimbursement expense management. It’s a lot to track, and it can get cumbersome without the proper tools. Thankfully CompanyMileage and its suite of mileage reimbursement software solutions takes all of these factors into consideration. 

Our handy mileage rate calculator is only one of the ways in which CompanyMileage makes reimbursement simple, efficient, and cost-effective. Unlike other reimbursement software, SureMileage uses point-to-point calculation, determining employee route and mileage reimbursement based on starting and ending points of an employee’s work-related travel, determining reimbursement based on whatever mileage rate you’ve decided to use. 

The entire process is automated, letting employees quickly and easily track mileage and submit reports for reimbursement right from their smartphones, eschewing the need for reporting odometer readings or manually keeping mileage logs. Once submitted, expense reports move through a customizable, digital approval workflow. Our software also integrates with all major accounting and approval software, ensuring a seamless, accurate reimbursement process from start to finish. 

CompanyMileage’s accurate, secure approach to mileage reimbursement management has been known to save our clients up to 20-30% on reimbursement costs. For more information on how we can help do the same for your organization, contact us for a demo and to learn more today!