By John Petrucelli, Vice President of R&D and Product Innovation, Motus
Driving for work used to mean that you spent all of your working day behind the wheel. Mobile workers were mainly truckers, in the business of transportation. That’s no longer the case. In today’s fleets there are a wide variety of needs. Cloud and mobility solutions have converged with the on-demand economy to fuel an increase in people that drive for work, while serving other roles for their business – the food delivery driver, the regional store manager, the repair specialist, to name a few. All of these different mobile employees have unique needs that their businesses must be able to support.
Vehicle programs, meanwhile, have been slow to catch up to the new dynamic. A one-size-fits-all program is no longer the soundest approach. Despite there being several different types of mobile workers serving several different roles within a single organization, most businesses will approach those mobile workers with a single, standardized vehicle program. This approach may seem easier. In reality, it’s a disservice to your business. That extends from costs, to your mobile workers’ functionality and productivity.
So how do you determine what type of vehicle program is the best fit for your mobile workers and your business? One key consideration: mileage. The best practices for low mileage drivers are very different from high mileage drivers.
Low Mileage Mobile Workers (Driving <5,000 business miles per year)
Low mileage mobile workers will drive for work occasionally but aren’t using their vehicles every day for business trips. Since their personally-owned vehicle is primarily for personal use, the organization doesn’t need to reimburse them for the entire cost of ownership. However, they are liable for reimbursing the employee for the costs associated with trips taken for work.
In instances like this, the best approach is to reimburse using the Internal Revenue Service (IRS) business mileage standard. For 2018, it’s 54.5 cents for every business mile driven. This rate is calculated each year based on the average costs of owning and operating a vehicle in the year prior. It is meant to account for the expenses incurred driving for work.
While the IRS business mileage standard is not a prescribed mileage reimbursement rate, it represents a “safe harbor” that allows employees to claim tax deductions for un-reimbursed driving expenses. To file these claims, employees need an IRS-compliant mileage log, but don’t need to submit justification beyond that – and mileage reimbursements can be paid 100% tax-free.
Mid-Mileage Mobile Workers (Driving 5,000 – 20,000 business miles per year)
Once mobile workers cross the 5,000-mile threshold for the year, they will often become eligible for Fixed and Variable Rate (FAVR) reimbursement programs. As I discussed previously, there are many reasons why this type of program is a favorite for businesses and employees alike. FAVR programs are more accurate and cost-effective than the IRS business mileage standard because they are based on the actual costs of driving for each employee.
To learn more about FAVR, I recommend checking out my previous piece, “Do Your Business a FAVR with Accurate Reimbursements.” It’s important to note that FAVR reimbursement programs require more comprehensive mileage logs for IRS compliance. Additionally, a business must have at least five employees reimbursed using this approach at all times during the year. Despite these more stringent rules, there are significant potential upsides in terms of cost and productivity when FAVR reimbursement is done correctly.
High Mileage Mobile Workers (Driving 20,000+ business miles per year)
For mobile workers with the highest mileage, the typical option is a fleet reimbursement program, where the company provides the vehicle and charges the employee for their personal use of that vehicle. The challenge with fleet reimbursement is finding the line between business and personal use, and accurately capturing mileage for the latter. Mileage fraud – both intentional and unintentional – can arise as an issue in this type of program. If you do implement a fleet program with personal use chargebacks, GPS-verified mileage logs are excellent for allaying these types of conflicts.
Alternatively, high mileage mobile workers can benefit from buying their own vehicle. For the employee, this approach gives them the flexibility to drive any vehicle they choose, but still get reimbursed for much of the cost thanks to their high volume of business use. Employers also win in this situation as their liability is significantly reduced without a company-provided vehicle. In addition, employers only pay insurance when the individual is driving for work – not all the time.
Whatever your business situation, it’s important to look at which type of vehicle program is right for your unique mix of mobile workers. Properly leveraging the different types of vehicle programs can dramatically lower the costs of associated with your mobile workforce, and result in happier and more productive employees on the road.