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Vehicle Reimbursement Program Basics

Business Vehicle Programs - What's on Tap

By Dillon Blake, Senior Director of Business Development |
09.14.2016

Business Vehicle Programs are a lot like beer. Ok, that might be a little bit of a stretch, but hear me out: Living in Texas, I prefer a nice Saint Arnold Brewing Lawnmower or a Dos X with a lime on a warm day. However, when I am visiting our corporate office in Wisconsin, I can’t resist a New Glarus Spotted Cow. In this example, there are different kinds of beer to fit different situations, times of the year and events. The same can be said for different types of vehicle programs that fit with different companies and job positions. With all the options out there, how do you know you are choosing the right one? Here are the four most common programs and how they could fit in with your organization:

Cents-Per-Mile (CPM)

Cents-Per-Mile ReimbursmentCents-per-Mile programs are simple and easy for a company. Employees turn in mileage, and the company pays for the mileage based on a pre-determined rate. What’s often missed is that, to meet IRS requirements, mileage logs noting start point, end point, time and date, reason for trip and total miles are required for all CPM employees’ mileage logs—for which the company is ultimately responsible.  Simple logs stating ‘2,000 miles last month’ will not protect the company or the employee from an audit. Proper mileage capture technology can assist in accuracy of mileage reporting for CPM programs. Last, CPM programs tend to over-reimburse high mileage drivers, and under-reimburse low mileage drivers. (Ex: If Employee A drives 40k miles/year, they could receive $23k in reimbursements, while Employee B driving 5k/year may only receive $3k which may not even cover the cost of insurance in some areas.)

 

Flat Allowance

In this type of program, the organization gives $X per month to help cover the use of a personal vehicle for business. Essentially, it is just a bump in compensation. It’s easy, static, and gives everyone the exact same amount. It’s also considered compensation by IRS rules, so flat allowances are taxed. So if a company provides a $500 flat allowance, the employee gets roughly 30% less in his/her check, and the organization pays $538 (after FICA) to give the employee a $350 benefit. Flat allowances tend to over-reimburse low mileage drivers, and under-reimburse high mileage drivers. (Ex: even if Employee A drives to 15 meetings and Employee B drives to 2, they are both reimbursed at the same rate). Also, flat allowances do not account for differing costs in fuel, insurance and vehicle registration fees in different geographies. Let’s just say that a $500 flat allowance will likely go further in Omaha than it does in Manhattan.

 

Fixed & Variable Rate (FAVR)

This is often considered the most confusing of all the options, but in reality is pretty straight forward. The company chooses a type of vehicle as a base for the reimbursement. The company also picks the insurance requirements. But, each employee has the freedom to choose their specific car (as long as it meets company standards). The employee benefits by getting a fixed payment that covers the business portion of insurance, taxes, depreciation, and registration based on where they live. FAVR reimbursements are also completely tax free for the employees and the company. The variable portion of the reimbursement is a cents-per-mile rate based on the employee’s local fuel costs. So employees are always fairly reimbursed for the cost of fuel, maintenance, and tires based on where they live. No two drivers get the exact same because their costs vary based on where they live and work.

 

Fleet

The company provides a car employees to do their jobs—sometimes a pool car and other times a vehicle they take home. Fleet vehicles are often used as a hiring tool and can be seen as a benefit. Fleet programs come with risks that the company has to accept and determine if they are reasonable (think accidents outside working hours). Fleet programs can make the most sense in instances when companies wrap a vehicle for brand awareness or marketing, when they need to have specialty vehicles (with racks, ladders, trays, or other up-fit), or when the company requires a vehicle that a majority of the population would not personally own (like a cargo van). Personal use reporting can also be a challenge for fleet programs, but proper mileage capture technology can assist with this.

 

As you can see, each program has its own set of benefits. We discovered from our Workforce Mobility Benchmark Survey that 64% of organizations actually use more than one of these programs at one time. It is all about finding the program that has the right body, flavor, and texture for your unique situation and organization. Comparing vehicle programs to beer doesn’t seem to be so much of a stretch anymore, does it? Visit our beer distributor page to learn more. Cheers!

About the Author

Dillon is the Senior Director of Business Development at Runzheimer. He has over 10 years of experience working in the business vehicle, fleet, and technology industries. Now with Runzheimer for almost 4 years, he has used his knowledge and expertise to help hundreds of organizations better manage their business vehicle and vehicle reimbursement programs.