Whatever type of business you’re in, if you have company employees who are regularly driving as part of their job, then the issue of mileage reimbursement is bound to come up. After all, driving takes fuel, fuel costs money, and it has to be paid for by someone, somehow.
If you just have employees occasionally using their own vehicles for work purposes, you might be able to get away with handling reimbursement expenses on an “ad hoc” basis, but if you rely on a fleet of company vehicles, you need a game plan.
Handling mileage expenses and reimbursement poorly can lead to wasted money, greater administrative burdens, and frustrated employees, so it’s important that your business gets this right.
In this article, we’ll cover what employers’ obligations are in this area, the benefits of a good mileage reimbursement policy, how to create one, and one way to simplify the whole process.
What Types Of Trips Are Eligible For Mileage Reimbursement?
The simplest way to think of this concept is that mileage reimbursement is for drives that employees make in the course of carrying out their job duties. A non-exhaustive list might include:
- Making deliveries
- Traveling to an offsite meeting with a client
- Going to a customer’s home or place of business for a service call
- Driving a company vehicle to a maintenance facility
In short, if the purpose of the trip was to perform a job-related task, then it could at least potentially be eligible for mileage reimbursement.
On the other hand, an employee’s daily commute would not be eligible for reimbursement. Using a company vehicle for non-work-related purposes, like going to buy lunch (unless they’re picking up lunch for a work meeting), would also not usually be considered eligible.
Keep in mind that if your company uses a company fleet in its day-to-day operations, then there will be significant, ongoing expenses for fuel. And if employees driving the vehicles are paying for the fuel, then a reimbursement policy is essential.
What Does The Law Say?
When discussing mileage reimbursement, we need to consider both employment law and tax law.
You may be surprised to find out there is no explicit federal requirement under the Fair Labor Standards Act to reimburse employees for mileage. The exception to this is if an employee paying for their own fuel would effectively lower their pay below the minimum wage.
Several U.S. states, including California, Illinois, and Massachusetts, do have their own laws that require employers to reimburse employees for mileage. So make sure to research local laws in the jurisdiction where your company conducts operations.
All of that said, even if you are not actually under a legal obligation to reimburse for mileage, there are still good reasons why you probably should, as we will discuss later.
If you are reimbursing for fuel expenses, there are important tax law considerations. Mileage reimbursement is tax-deductible for employers and is also not considered income for employees.
The specifics of deductions for employers depend on the size of your fleet. For example, if your fleet is less than five vehicles, the IRS allows businesses to choose between a standard mileage rate deduction or deductions based on “actual expenses.” And companies with more than five vehicles must use the actual expenses method.
The standard mileage rate method is based on a rate set annually by the IRS. Currently, it’s set at $0.655 per mile. Fleet managers who use this rate may not deduct any other expense-related costs for their company vehicles.
Under the actual expenses method, you can track and deduct a much wider range of vehicle costs, including fuel, depreciation, lease payments, maintenance registration fees, and more. This requires extremely thorough record-keeping to get the biggest possible deduction.
On the employee side, if the reimbursement rate is higher than the actual expense of driving for work, it can count as taxable income, meaning income taxes for the employee and payroll taxes for the employer.
Reasons To Implement Mileage Reimbursement
There are good reasons your company should reimburse for mileage and have a coherent policy for managing reimbursements, even if no federal or state law actually obligates you to do so.
Staff Morale And Retention
There’s no way around it: If you want to hire and keep good fleet drivers, you need to reimburse for mileage expenses.
Expecting employees to pick up the tab for refueling company vehicles without reimbursement will significantly eat into their wages, leading to discontentment.
For fleet managers, not covering or reimbursing fuel costs is a non-starter.
Tax Benefits
Although the recordkeeping for claiming mileage as a tax deduction may seem daunting, it’s worth it.
If your company depends on a fleet of vehicles, then fuel and maintenance are probably your most significant expenses. That’s why it’s essential to have an effective policy for managing reimbursement so you can offset that expense as much as possible through deductions.
Performance Optimization
The mileage and expense tracking required for reimbursement gives you a clearer picture of your fleet operations overall.
Reviewing miles driven and costs paid for fuel can give you insights into ways you can make your fleet operations more efficient to cut costs and serve your customers better.
Creating A Mileage Reimbursement Policy
Now that you understand the need for properly managing mileage reimbursement, we can consider the fundamentals of creating an effective reimbursement policy for your business.
Understand Driving Costs In Your Region
For your reimbursement policy to serve both your company’s and your employees’ best interests, you need to correctly calculate your reimbursement rate.
Some businesses use the IRS standard mileage deduction rate as their reimbursement rate. However, this is based on a national fuel cost average, and depending on where your business operates, it may be an inefficient choice.
Researching what the typical driving costs are in your region will allow you to set a rate that covers employee expenses without busting the company budget or incurring taxes.
Define What Constitutes Business Use
Your drivers should be clear about where you draw the line between business and personal use so there’s no confusion or chance for misinterpretation.
For fleets whose drivers check out a company vehicle in the morning, use it to make calls during the day, and then return it in the evening, making the distinction between business and personal miles might be easy.
In this case, while they’re using your vehicle, it would be unacceptable for them to go out of their way to pick up their dry cleaning because they’re supposed to be adhering to the appointment schedule you provide for them.
But for a fleet that assigns drivers a “take-home vehicle,” the lines between business and personal mileage can quickly and easily get blurred.
Your business may not be in that position yet, but it doesn’t hurt to plan ahead and establish clear guidelines about business versus personal use so that you’re ready if your business ever needs to assign a company car to one or more of its drivers.
As you’re thinking about how your business wants to define business mileage and personal mileage, keep in mind that personal mileage is different from personal conveyance.
For more information on that latter topic, check out this article from the Coast blog: Personal Conveyance: A Complete Guide For Fleet Managers.
Establish Record-Keeping Requirements
Once you’ve defined business use versus personal use for your fleet, the next big step is to establish record-keeping requirements and processes for you and your drivers.
At the most basic, record-keeping for your drivers will involve maintaining an accurate mileage log that details information such as:
- Date
- Purpose of the trip
- Destination
- Starting odometer reading
- Ending odometer reading
You may also make it mandatory for drivers to turn in receipts in order to provide proof of their activities while on the road.
Regardless of the information you require, your record-keeping method plays a pivotal role in the success of your mileage reimbursement program.
For decades, fleets relied on hand-written paper records to track vehicle use. And, while those types of records can still work in some cases, modern digital tools like telematics and smart fuel cards now make things much easier to track and manage.
Telematics allows you to capture odometer readings and vehicle location (as well as a wide range of other variables), while smart fuel cards like Coast allow you to capture accurate details about purchases (including receipts) so that everything is as organized as possible.
Set Reimbursement Procedures
Creating reimbursement procedures can help your program proceed smoothly after your drivers have submitted their records for business and personal use.
Be sure to include details such as:
- Forms that must be filled out: For example, drivers must turn in a Reimbursement Request form with all relevant records.
- Deadlines for submitting records: Your business might set the first and 15th of every month as a deadline for submitting records. Pick deadlines that make the most sense for the process as a whole and those crunching the numbers.
- Payment dates: Establish dates for when your business will distribute reimbursement payments. For example, you may choose the 10th and 25th as payment dates before the next submission deadline arrives on the first and 15th.
- How payment will be made: Your business may provide payment in one way or a variety of ways (e.g., check only or via direct deposit, reloadable debit card, or cash). This decision depends on what works best for you, your staff, and the workflow as a whole.
As you set up your reimbursement procedures, it’s also important to include information about the steps involved in (and who is responsible for) reviewing and approving any mileage that your drivers submit.
Be sure to mention that any mileage that can’t be verified through normal channels (e.g., via telematics and receipts) will not be reimbursed without approval from management.
This will help to cut down on some of the more subtle forms of theft that can make their way into fleet activities.
Track By Driver
It may seem convenient to just calculate what you think is a fair flat monthly reimbursement for all your drivers. However, tracking mileage and vehicle costs for each individual driver can save you money.
Tracking on a driver-by-driver basis can also help you better understand potential sources of inefficiency in your operations.
Communicate Policy Clearly
Any company policy can only benefit the company to the extent it’s actually followed. Your company’s mileage reimbursement policy won’t be effective unless all of your affected employees understand it and are on board.
Make sure drivers understand what’s required of them in terms of mileage and expense logging and that they can’t rely on being reimbursed unless they provide the necessary information.
How To Track Mileage For Reimbursement
Getting the full benefits of mileage and vehicle expense reimbursement requires several steps.
The Manual Way
- Create a logbook for each vehicle.
- Have drivers record mileage driven for every business-related trip in the logbook.
- Record other details, such as the purpose of the trip, starting and ending odometer mileage, and expenses incurred along the way such as tolls.
- Save and turn in any receipts.
Automated Solutions
Tracking fleet expenses the traditional way — as outlined above — requires a lot of tedious effort from drivers, and even the best ones will sometimes forget and make mistakes.
Many would argue the better way to handle fleet expense tracking is with telematics — a set of systems and vehicle add-ons that use the Global Positioning System (GPS) and on-board diagnostic (OBD) equipment to plot movement on a computerized map.
Telematics can automatically record data on vehicle mileage, speed, fuel consumption, idling time, and other “vital statistics,” and then send it to a fleet management software reporting dashboard.
Compared to traditional logging, telematics can give you more accurate data.
Alternative: Using Fleet Fuel Cards
Another way of greatly simplifying the problem of managing fleet fuel expenses is by getting a fleet fuel card. This is a specialized type of company credit card usable only at service stations to allow your drivers to conveniently pay for refueling their company vehicles.
Fuel card transactions all appear on your billing statement, and you may be able to set up additional spending controls and metrics for tracking things like current vehicle mileage or driver number.
Using a fuel card can greatly streamline your fleet operations because you don’t have to collect receipts and process reimbursements, and your employees don’t have to save and turn in receipts and then wait to be reimbursed.
Rubber Meets Road: The Bottom Line
If your business relies on a company fleet, then getting vehicle expense tracking and mileage reimbursement right for vehicle expenses is essential for cost control and staff retention.
Many fleets contend with incorrect data because of misreported mileage, incorrect odometer readings, and fuel cards being used by multiple users in different vehicles.
Using telematics and fleet fuel cards — like the Coast smart fuel card — can dramatically cut down on the work required for both managers and drivers and also provide more accurate data.
Through its integrations with telematics solutions, Coast blocks transactions for personal usage and automatically retrieves odometer data for each transaction to ensure proper mileage. It also helps you track fleet spending to ensure that you have the right data for your mileage reimbursement program.
To learn more about the ways Coast can help you manage your fleet and streamline your mileage reimbursement program, check out CoastPay.com.
Apply in minutes