How to create an effective mileage reimbursement program
1.
2. The benefits you offer your employees are
critical in being able to hire quality staff
members. When you plan on asking employees
to use their personal vehicles for business
related activities, then one of the benefits you
need to offer is employee mileage
reimbursement.
One of the reasons for offering reimbursement
is to avoid the possibility that your employees
may later present you with a bill for the use of
their personal vehicles for business activities.
The other reason that you want to create a
comprehensive reimbursement program is so
that you can offer it as a perk to entice premier
employment candidates to join your company.
As you begin developing your mileage
reimbursement policy, there are several things
that you need to keep in mind. A
comprehensive reimbursement plan is going to
enhance the motivation for your staff and allow
you to still reap financial benefits for your
company.
3. All mileage reimbursement plans are based on the maximum allowable
deduction as outlined by the IRS. Any savvy employee will know exactly
where to look to see what the maximum allowable IRS deduction is for
business miles. This maximum per mile amount is the highest tax benefit
you will get for offering employees mileage reimbursement and it is the
guideline you need to use when establishing your maximum
reimbursement figure.
The IRS puts out its mileage allowance number in cents per mile. You can
choose to offer less than the IRS maximum, but you should never offer
more. You will get no financial relief if you offer more than the stated
maximum.
Most of your competitors will be offering the maximum as allowed by
the IRS to their employees. Since the purpose of a mileage
reimbursement plan is to offer a competitive compensation package,
you should also consider offering the maximum amount as well.
4. If you do not have a comprehensive set of policies on
mileage reimbursement, then you are opening the policy
up to abuse. You will start to get employees submitting
mileage forms for reimbursement that you were not
expecting and it can start to become expensive.
When you develop your reimbursement program, one of
the key elements will be the need for employees to get all
mileage reimbursement activities approved by company
management up front. Some companies go so far as to
have employees submit forms to be signed by
management before mileage reimbursement can be
approved.
Another important element to keep in mind with a
reimbursement program is the kind of vehicle your
employee is using. You may want to offer a lower per mile
rate to employees who have less efficient vehicles and
offer the highest per mile rate to employees with fuel
efficient cars. This will save you money and it may also
inspire your employees to get better vehicles.
5. An essential part of an mileage reimbursement program is the form that your
employees fill out. This is important because it forms the basis of the tax
deduction you will claim for business mileage expenses.
Another reason that this kind of form is important is because it is a way to
monitor employee activity. If you notice that employees are claiming 50 miles for
a location that is only 10 miles away, then this is something you need to address
with your employees. You can also match up the management approval forms to
the actual reimbursement forms to make sure that they match.
A reimbursement form should be signed by the employee and by any applicable
managers. The employee's signature is critical because it binds the employee to
the information on the form. If you suspect that an employee is using your
mileage program to defraud the company, then having his signature on the
mileage forms could wind up being extremely important evidence.
The form is also critical for your accounting department. A mileage
reimbursement form needs to have all of the pertinent accounting information
on it, including routing information to make sure that everyone who needs to see
it does get to see it, in order for the form to be effective.
6. One of the biggest mistakes some employers make
when it comes to reimbursing mileage is they put
the reimbursement into the employee's paycheck.
For tax purposes, and for the sake of your
accounting group, the payment should be made
with a separate check.
In most cases, companies prefer to keep mileage
separate from commissions and other expenses as
well. Mileage reimbursement is the one expense
that has its own designation on an IRS tax filing. If
you pay your employees with mixed checks, then
you will not be generating accurate tax information.
Commissions, bonuses and salaries have federal and
state income taxes applied to them and all three are
taxed at different rates. Expenses are not taxed.
That is one of the main reasons why you should
never mix mileage in with the paycheck. Expenses
are also categorized on IRS tax filings. This is why
your mileage needs to be its own separate check,
away from the other expenses.
7. A mileage reimbursement program can be beneficial for your company in
several regards. Some business owners see a mileage program only as an
expense. But if you plan on asking your employees to use their personal
vehicles for business purposes, then offering mileage is an essential part
of doing business.
When you develop your mileage reimbursement program, the more
detail you put in your polices the better. It is important that the exact
details of the program be outlined to your employees, and it is also
critical that you keep all of your mileage reimbursement paperwork
separate from all of your other accounting documents.
Once you have a solid program in place, then you will be able to offer a
program that will allow your company to offer a competitive
compensation package to the top talent in your industry.
