FAVR Flexibility: The Importance of a Scalable Program

If you’ve ever driven through farmlands, you’ve likely seen they’re often lined by a row of trees on several sides. Ever wonder what that was about? Those are field windbreaks, acting to protect the crops and soil from wind erosion. Because of how they grow, trees have more flexibility and can stand against strong gusts. What does this have to do with vehicle programs? Well, in this metaphor, a fixed and variable rate (FAVR) reimbursement would be considered a tree. What makes FAVR a flexible vehicle program and why is that so important? Let’s get into it.

What is FAVR?

First, really quickly, let’s define FAVR. As we’ve mentioned in other posts, FAVR, or fixed and variable rate reimbursement, is a vehicle program that reimburses employees for the costs associated with driving their personal vehicle for work. Those costs can be split into two categories: fixed costs and variable costs. This is special because other vehicle programs—company provided, car allowance, cents-per-mile—don’t do that.

Why is flexibility important?

So why is flexibility in a vehicle program important? Remember the farmland, with the field windbreaks? Let’s say none of the trees were there anymore, they were all cut down. There’s no guarantee strong winds would come through to scatter the top soil all over and destroy crops… But that’s not a scenario most farmers are comfortable with.

When the economy takes a turn for the worse, companies often have to make adjustments. Some adjustments are easier than others. Companies offering a car allowance or a cents-per-mile (CPM) reimbursement will have a harder time adjusting their programs to meet the needs of their driving employees. The challenge of inflexible vehicle programs will likely lead to dissatisfaction in the driving employee base.

What does a flexible vehicle program look like?

We’ve given a couple of examples of vehicle programs not being flexible. It’s as simple as a CPM rate not covering the costs to drive for business, or a car allowance stipend running our before the end of the month, or being stuck with a fleet of unused vehicles following a reduction in driving employees.

Flexibility in a vehicle program means that, when the economy takes a turn, the vehicle program can adjust to the circumstances. Keep in mind, this can be for better or worse. In an up economy, employers may way to offer their driving employees more of a reimbursement. In a down economy, the opposite will be true. Not every vehicle program is so adjustable.

How does FAVR offer flexibility?

In the introduction of this blog we referred to FAVR as the field windbreak. Why? Well, let’s take a closer look at what sets FAVR apart. As mentioned above, employees in a FAVR program are being reimbursed for the fixed and variable costs of driving their personal vehicle for work. With the right vendor, those costs are specific to each driving employee’s location. So, in that way, when gas prices change month over month, so too do reimbursements. Neat, right?

FAVR also provides flexibility in the potential for program adjustment. When companies onboard with a FAVR program, they choose a base model vehicle they will be reimbursing at. This doesn’t impact the vehicles employees actually drive, it just makes the process of providing reimbursements across a mobile workforce easier. As the economy shifts, companies can alter the amount of reimbursement they provide.

Not 100% sure on all of this? Let’s iron things out with some examples.

FAVR Flexibility with Growth

Big things are happening at Fortunato, a pharmaceuticals company with a product freshly approved by the FDA and ready to hit the market. This company is ready to grow explosively. They want to reflect this growth in their vehicle program. They also hope to use their advantageous vehicle program reimbursement as a benefit during the recruiting process.

With a FAVR program, Fortunato can assume a luxury car as the base vehicle for reimbursement, adjusting the fixed and variable rates to give their driving employees (and potential employees) the best they can (while keeping the program tax-free).

FAVR Flexibility with Reduction

Remember Fortunato? After a string of misfortunes, the pharmaceuticals company’s days of growth are years behind them. With the economy entering a bear market, leadership is looking for ways to make adjustments that can help them control costs. One item they’ve noticed? Their generous vehicle reimbursement program.

Fortunato won’t be changing the base vehicle from a luxury car to something more economically appropriate. However, they can adjust the rate to ensure that driving employees still receive a fair and accurate reimbursement. It may not be as generous as the original offering, but it will still ensure they receive their due.

Relying on a Flexible Vehicle Program

In the examples we shared above, Fortunato was able to easily manage both scaling up and shifting down their vehicle program because it was a FAVR reimbursement. Companies with inflexible programs will have a much harder time making adjustments. In early 2023 when gas prices were so high, businesses with CPM were providing employees with emergency car allowances. Companies with car allowances were providing employees with emergency gas cards. And businesses with fleet vehicles ate a lot of fuel expense costs.

As we’ve mentioned throughout this piece, the FAVR program can function like a field windbreak, taking the economic furies that other programs cannot. Farmers know to plant rows of trees between their fields, yet companies stick to the vehicle programs they know, more often than not because they don’t realize what another program might provide.

Interested in learning more about the fixed and variable rate reimbursement program? Check out our Business Guide to the Fixed and Variable Rate Reimbursement today.

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