Vehicle Programs: How to Calculate Mileage Reimbursement

Running a mileage reimbursement, or cents-per-mile (CPM), program without a properly-calculated mileage reimbursement rate can result in many challenges. Using a rate that suits their driving employees will help navigate some of these challenges. So what goes into the calculation of a mileage reimbursement? And why isn’t the IRS mileage rate a great mileage reimbursement option? In this post we’ll answer those questions and walk through how to calculate mileage reimbursement.  

What makes a good mileage reimbursement? 

The purpose of a mileage reimbursement is simple: pay driving employees for the business use of their personal vehicle. The more complicated bit is getting that rate right. The question of how to calculate mileage reimbursement isn’t as simple as “x cents per mile should cover the price of gas.” Getting mileage reimbursement wrong not only puts driving employees at a disadvantage, but can also be a liability to the company. 

Why not use the IRS mileage rate? 

Every year, the IRS announces their business mileage rate. This rate is calculated based on data from the prior year and is intended as a guideline to businesses. Reimbursing at or below this rate, the company’s reimbursement remains untaxed. However, there are several issues with using this rate.  

First, it’s a national average. In applying to every state, it doesn’t apply accurately to many of them. Second, the rate is based on the previous year’s data. If gas prices change drastically, as they often do, the rate may be overly generous or simply not enough. Companies that want to provide accurate reimbursements should be using a different rate. Now, for how to calculate a mileage reimbursement. 

How to calculate mileage reimbursement 

Calculating a mileage reimbursement means taking a number of factors into consideration. But first, let’s get something out of the way. Mileage reimbursement programs are best suited for companies with a smaller number of drivers in a specific location that drive no more than 5,000 miles annually. Companies with high-mileage driving employees spread over several states should look to alternative mileage reimbursement options.  

However, if knowing how to calculate mileage reimbursement is all that’s keeping you from supporting your small team of drivers with accurate reimbursements, we’re here to help. Here are the prices that go into calculating a mileage reimbursement. 

The Price of Fuel 

For every trip, employees need gas. There are several reasons calculating the fuel portion of a mileage reimbursement isn’t easy. Fuel prices change fairly often. Production impacts the cost of fuel the most. The economy and geopolitical conflict can result in a slowing or stopping of production. There are also seasonal differences in gasoline. In September, refineries switch to a cheaper, winter blend, while in March and April they change to a more expensive summer blend.  

The Price of Vehicles 

It’s tough to do a job that requires driving hundreds of miles each month without a vehicle. The cost of a vehicle is less volatile, but it has been trending up. Before the pandemic, this was largely due to additional safety features becoming more standardized. Features like back-up cameras and lane departure warning systems have become as common as cruise control in many vehicle lines. Supply chain issues and, more specifically, chip shortages have also contributed to the increase in the price of vehicles. 

The Price of Vehicle Maintenance  

There’s more to keeping a vehicle running than gasoline. Most require an oil change after 5,000 to 7,500 miles. Alternating tires or replacing them, changing out filters, these standards of vehicle maintenance are necessary expenses. As a main cost of vehicle ownership, maintenance should impact how companies calculate mileage reimbursements. 

The Price of Insurance 

Driving is so ingrained in everyday life, it’s easy to forget how dangerous it can be. If you’re driving, you need insurance. And as incidents of distracted driving increase, the number of accidents and price of insurance also increase. This may not be the first consideration, but it’s definitely an essential cost of vehicle ownership. 

Outsourcing Your Mileage Reimbursement Calculation 

Knowing how to calculate mileage reimbursement is one thing. Actually calculating it is something else entirely. Most companies don’t have access to the data required to provide an accurate mileage reimbursement to their driving employees. That’s one of the reasons so many companies use the IRS mileage rate. Fortunately, there is another option.

Companies outsource their mileage reimbursement programs to providers that calculate rates for them. It won’t surprise you to learn we’re one of those companies. Our rate calculations are powered by our best-in-class platform. The Motus Platform gathers millions of data points from all over the country to provide accurate, location-based reimbursements. With our mileage reimbursement offering, companies can accurately reimburse driving employees without worrying over rate calculation. Interested? You can learn more here. 

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