Business Vehicle Programs: Car Reimbursement

Businesses across industries need employees to drive for work. From regional managers to sales reps, the mobile workforce is essential. But most companies don’t know of other vehicle programs outside of what they’re currently using. These programs ensure employees earn the reimbursement that they’ve driven for. One popular example of a reimbursement program is being reimbursed by the cent-per-mile. So, what is a car reimbursement?

What is a Car Reimbursement? 

A car reimbursement is a business vehicle program that reimburses employees at a cents-per-mile rate or the business use of their personal vehicle. This program has other names such as mileage reimbursement, cents-per-mile program, CPM reimbursement, etc. There are also many ways a company can stand up a car reimbursement program.

Benefits of a Car Reimbursement 

A car reimbursement sets itself apart from other vehicle programs in that it can be a tax-free option administered to multiple employees. Companies also stand to control costs by implementing a rate lower than the IRS standard. However, these benefits depend greatly on the way the program is implemented.

Downsides of a Car Reimbursement 

CPM reimbursement programs are only ideal for companies where their drivers have lower mileage reported in the year. Employees that drive more than 5,000 business miles receive larger reimbursements than necessary, at the companies expense. This is compounded by the fact that most companies use the IRS mileage reimbursement rate (which is not the purpose it is intended for).

Additionally, when employees track their mileage manually, they will often round their mileage. This rounding, more accurately labeled mileage fraud, may not seem like a big issue. However, take the rounded amount on each trip, multiply it by the workforce and the working days in a year and that amount becomes substantial.

Finally, CPM reimbursement programs aren’t always fair to driving employees. If the company’s drivers all operate in the same area, there’s no issue. However, with most companies, drivers live and drive in different regions and states. The price of owning and operating a vehicle varies across those areas. To reimbursement everyone at the same rate is not fair to the employees that live in higher cost areas and pay more for vehicle expenses. 

When should a company use a Car Reimbursement? 

Car reimbursements work best for companies with low-mileage drivers focused in one general area. Companies that use IRS-compliant automated mileage tracking apps mitigate the risk of mileage fraud and audit. With precise mileage capture, employers control costs that generally run rampant with mileage fraud. Further, companies should implement a reimbursement below the IRS mileage rate that still covers the geographic costs of operating a vehicle. Above the IRS mileage rate and the reimbursement becomes taxable income. Too low, and your company may be violating labor laws. 

What’s next for your company? 

If a CPM reimbursement program seems like a good fit for your company, explore your options! We have a lot more information if you’d like to know more about our CPM offering. If it seems like your company doesn’t quite work with this type of reimbursement program, don’t worry, there are other options to choose from! Don’t fall into the trap of thinking there’s only one choice for your company. You can learn more about the vehicle reimbursement program (or programs) that will bring serious benefits to your business.  

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