Fixed and Variable Rate (FAVR) Reimbursement: Fair and Accurate
by Donna Koppensteiner
In uncertain economic climates, a best practice in business management is to control as many costs as possible. Business driving, while critical to company growth, represents an opportunity for better management and significant savings for many companies. By implementing the right tools and policies to enable the most efficient programs, companies can realize significant gains in revenue and cost efficiency at the same time.
Choosing a fixed and variable rate (FAVR) plan
for reimbursing business drivers offers advantages and significant cost-saving opportunities. In the FAVR plan, employees drive their own vehicles and can receive nontaxable reimbursements for their fixed and variable vehicle costs, based on cost information developed by the organization or provided by a third party. FAVR plans give maximum cost control; by separating fixed and variable costs, FAVR provides a true reflection of actual expenses related to business driving.
While savings depend on multiple factors, organizations that have switched to the FAVR approach tend to report savings up to $2,000 per employee per year, or 18% over typical cents-per-mile programs.
Switching from a fleet program frees up capital and requires less time to administer the plan. With FAVR plans, there is no FICA tax liability or income tax reporting, no drain on capital, and over-payments are eliminated. While the employer retains broad control over the types of vehicles driven by participating employees, the employees own the vehicles, reducing the company’s risk exposure outside normal business hours.
By switching to a FAVR vehicle reimbursement plan
, your company may experience significant savings – both in cost and liability reductions. By combining these savings with a more accurate reimbursement based on fixed and variable elements for each unique driver, you can also cut costs associated with overpaying high-mileage drivers.
Posted 5/23/2013 4:33:40 PM
To identify the best cost-savings approach for your business, request a no-cost business driving ROI analysis
. A 10-minute assessment can help you look deeper into cost cutting measures to help support employees that drive for business.
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, fixed and variable rate