While federal law does not require that companies compensate employees for business use of their personal vehicles, plenty of employers do so—and for good reason! For one thing, having a mileage reimbursement policy helps organizations avoid the hassles of company-car ownership and the excessive expense of car allowances. For another, having clear, thorough policies for mileage reimbursement helps prevent employees from bringing bills—or worse, lawsuits—in an attempt to recover out-of-pocket expenses.

So what should an employer consider when developing a mileage reimbursement policy? In this article, we’ll break down the purpose of these policies, what information they should include, and the importance of the proper tools in safeguarding the best mileage reimbursement workflows possible. 

The Purpose

The goal of an effective, actionable mileage reimbursement policy is to provide a foundation for mileage reimbursement processes compliant with Internal Revenue Service guidelines for an accountable plan. In order for the IRS to deem work-related mileage accountable, or nontaxable, employees must keep and submit mileage logs. 

The IRS does not require that those logs fit any specific format, but compliant logs must:

• Detail the business purpose, time, date, and locations of each trip
• Be submitted to the IRS in as timely a manner as possible (Weekly updates should be sufficient) 
• Contain accurate information, from mileage eligibility, to calculation totals, to trip data.

The accountable plan also dictates that if an employer reimburses an employee in excess of what was actually incurred or spent, the employee must return that amount in a reasonable time period (usually 60 days). 

Your company’s reimbursement policy should also provide information on how much, exactly, employees will be reimbursed. Determine the rate per business mile at which employees will be compensated. Communicate this amount clearly, including any updates made to that rate annually or as necessary.

The Details

What Should the Per-Mile Reimbursement Rate Be?

Every year, the IRS announces their standard mileage rate, based on analysis of how much owning and operating a vehicle costs in the United States, and how those costs are expected to change over the course of that year. This rate is usually updated annually, although midyear updates to account for market fluctuations are not unheard of. 

While most businesses choose to reimburse their mobile employees at the rate set by the IRS, it’s not mandatory. Because this IRS rate is based on national averages, some organizations choose to reimburse their employees at a rate that more accurately reflects the specific needs of their business. If your organization chooses to set its own rate, it should consider two factors: business location, and the type of vehicle required.

The price of fuel, insurance, maintenance, and even vehicles themselves can vary widely from place to place. These and other costs of vehicle ownership in a business’s main region of operations should be a factor in calculating a business-specific reimbursement rate. What vehicles employees need to adequately do their job may also play a part in determining the rate. After all, a plumber needs a different vehicle than a home-health nurse. 

If your organization does choose to set its own rate, be careful! If you exceed the IRS standard and reimburse your employees at too high a rate, the excess payments will be considered employee wages, and be susceptible to taxation. On the flip side, reimbursing employees too little may cause the employee’s salary to fall under the minimum wage, which could trigger wage and hour disputes, and even possible legal issues. 

If your business is seriously considering setting its own mileage rate for employees, a great way to avoid these pitfalls is by using a reliable rate calculator. CompanyMileage has one that calculates a more geographically specific reimbursement rate here! 

What Expectations Should Everyone Have For The Reimbursement Process?

Travel

Use your company mileage reimbursement policy to dictate which forms of travel are eligible for reimbursement – and which are not. Eligible mileage includes travel between work destinations, with a work-related purpose. Commuting mileage, on the other hand, does not qualify. Instead, the IRS classifies commutes between an employee’s home and place of work as personal travel. Other forms of personal travel, such as side trips, are also ineligible for reimbursement.

Employee Responsibilities

A strong reimbursement policy should also outline all relevant responsibilities and guidelines for any employee who will be driving their personal vehicle as part of their work-related duties. Mobile employees should possess a valid driver’s license, as well as adequate insurance coverage. Neglecting to ensure that mobile workers have the correct credentials and qualifications on the road could result in serious blowback for your organization. 

Additionally, clearly communicate to workers what actions they’ll need to take to receive reimbursements. As we noted above, documentation is a key element of an accountable mileage reimbursement process, but the IRS does not dictate what that documentation looks like. How employees track and record their work-related mileage is up to you!

Should your workers calculate their work travel by tracking and subtracting vehicle odometer readings? What about GPS tracking? Should their mandatory mileage logs take the form of paper worksheets? Digital spreadsheets?  Once your employees have tracked and compiled their mileage logs, how should they file expense reports, or receive payments? 

The Process

Workflow

Break down every step of what the reimbursement process will look like, from mileage tracking and logging through report submission, approval workflows, all the way through payment. Give workers a clear idea of the timeline from submitting expense reports to the distribution of payments. 

Be sure as well to communicate how they will receive those payments. Set regulations in place to keep those reimbursement payments separate from wage payments, to avoid improper withholding. 

Consequences for Noncompliance

It’s crucial that your company’s mileage reimbursement policy clearly states the repercussions for noncompliant behavior. Provide and define examples of problematic behaviors, including late claims, incomplete claims, and expense fraud, as well as their consequences. 

It’s equally (if not more) crucial that your organization follows through with whatever those stated consequences may be. If your employees sense that there will be no actual ramifications for their behavior it will become that much harder to hold your workers to proper standards. And this could—again—have serious consequences for your organization in the form of a damaged reputation, regulatory fines, or even lawsuits.

Keeping Things Current

Compiling the right information in a mileage reimbursement policy isn’t enough—once your policy is complete, it’s time to release it into the wild. Any policy is only as good as employees’ ability to access and follow that policy, so don’t take the distribution process lightly!

It’s a good rule of thumb to train employees on any new policies to guarantee their acknowledgement and understanding of company rules. Keeping your mileage reimbursement policy easily accessible to employees will also provide them with a resource if they have questions. Your company may also consider periodic reviews of company policies and annual process audits, to ensure up-to-date regulations and employee compliance. 

The Tools 

Are you using the proper equipment to enact your company mileage reimbursement policy? Mileage reimbursement is expensive; inefficient systems only add to that expense! 

Paper logs and manual spreadsheets are time-honored methods of tracking and logging work-related travel, sure, but they’re also slow, inefficient, and have wide margins for costly mistakes. With one mistyped number or one miscalculated mileage reading, your employees might invalidate the accuracy of an entire log, without even knowing they’re doing it. 

This extends to report submission and approval workflows as well! Manual workflows mean a higher risk of lost or misplaced documents, confusion and slowdowns when a manager or supervisor is off or on vacation, and time-consuming bottlenecks. This in turn leads to longer waits for reimbursement payments, and a lower guarantee that those payments will contain accurate figures—not the best way to thank your employees for their hard work. 

Better Built, Better Imagined Mileage Reimbursement Processes with CompanyMileage

Instead, consider bolstering your company’s mileage reimbursement policy with digital reimbursement tools from CompanyMileage! Our suite of software solutions were created specifically to automate and streamline the entire process of mileage reimbursement without sacrificing ease or accuracy.

SureMileage, our software for mileage reimbursement, uses automation to take the guesswork out of mileage calculations. Employees simply enter the start and end points of each trip, and the system uses those points to calculate the best route between them, and the amount for reimbursement. 

Using SureMobile, our mobile app, workers can track, record, and organize trip data right from their smartphones, no matter where they are. Our QuickCapture feature takes this one step further, letting employees log travel data with the literal tap of a button. At the end of the day, workers just have to take a few minutes to organize their trips, take pictures of any relevant receipt or documents, then submit expense reports for approval. 

Those reports then move through an automated workflow, which CompanyMileage makes easily customizable to meet the unique needs of your business. Once reports are approved, our software integrates easily with all major accounting and approval systems, safeguarding fast and accurate reimbursement payments. 

The power to create the best reimbursement processes possible is in your hands; let us provide you the resources to make them a reality, and even save you money in the process! To learn more about how, request a free demo from CompanyMileage today.