Disbursements

Getting Past ‘Standard’ To ‘Fair’: Tech Brings Efficiency To Mileage Reimbursements

Everyone knows the ritual, one that combines solid numbers and a sense of hope: the reimbursement of mileage driven by workers in service of their employers. The task traditionally involves the official IRS mileage reimbursement rate (which, for 2019, stands at $0.58 per mile, up $0.035 from last year), along with the knowledge that some employees are likely making out better than others.

Yet, mileage reimbursement is changing — and in a way that can save companies money. For that, thank digital and mobile technologies, and the ability to analyze data in such a way as to find those seemingly small, but meaningful differences in the cost of driving throughout various locations.

In a new PYMNTS webinar, Karen Webster and Danielle Lackey, chief legal officer at expense management provider Motus, spoke about those changes, and how companies can get with this trend to save money and even make employees happier. As mundane as mileage reimbursement may seem (and let’s be honest, it’s hardly the most glamorous topic when it comes to the 21st century digital economy), the issue is vital.

“It’s a big line item for companies,” Lackey said, adding that, historically, “there’s been not a lot of visibility into that spend, and not a lot of control over it.”

Mileage Misconceptions

That’s not so say that everyone involved with mileage reimbursement is a crook (though, of course, mileage fraud does persist). Rather, it’s to point out the inherent inaccuracies that come with paper receipts, along with the misconceptions tied to the official IRS mileage reimbursement rate, which is adjusted annually.

That rate  so often treated as a holy, infallible commandment  is anything but. As Lackey explained during the webinar, the rate is based on country-wide averages, such as fuel prices and vehicle depreciation, and is not forward-looking, but “reflects the cost from the prior year” of operating an automobile on a per-mile basis in the U.S.

However, reflections are not always the most accurate metrics, and that’s the case with the IRS mileage rate. Per-mile driving costs can vary greatly, depending on geographic location — say, for instance, the relatively wide-open spaces of the Midwest versus the crowds and chaos of New York City or San Francisco. In addition, reflections don’t always do the best job of accounting for car insurance and other fixed costs, at least not at every mileage level.

“It does work well for mobile workers who drive less than 5,000 miles” annually, Lackey said. Beyond that, though, using the IRS rate can lead to unnecessary expenses, including tax-related ones, for employers. She said that while it is helpful to view the IRS rate as a “safe harbor,” using digital technology to dig deeper into mileage and employee driving can lead to cost savings for businesses — assuming they keep good track of that driving, and retain enough data to satisfy the federal tax agency.

Different Programs

During the webinar, Lackey ran through the different types of mileage reimbursement programs operated by companies. Those include a flat car allowance (which, if not handled properly, can count as compensation and can be taxed, and result in unfair situations among employees); company-owned vehicles with chargebacks for personal use; and what she called a “fixed and variable rate program” (FAVR — how’s that for an acronym?).

The general idea behind FAVR — a goal made possible by digital modes of tracking, driving, collecting and analyzing the relevant data — is to eliminate tax waste by calculating something closer to a true employee mileage rate, rather than simply using the official IRS metric. Getting a sense of the actual costs means going beyond simple calculations (tracking, for example, gas prices that vary across state lines, and knowing who was where, when and for what purposes), and doing so in a way that doesn’t rely on last year’s costs, but expenses from, say, a month or so ago.

Lackey offered an example of how that approach can save money, via a case study of an unnamed California retailer with 9,000 employees and a group of “high-mileage regional managers.” Digging deeper into the real costs of that company’s driving, instead of relying on the IRS rate, can lead to a reduction in reimbursements of some 20 percent, or about $200,000 annually, she said. Doing so requires, among other tasks, the creation of IRS-compliant mileage logs for all employees.

Cutting costs is not the only motivation to bring more digital precision to mileage reimbursements. Compliance issues — thanks, in large part, to recent lawsuits and court rulings involving independent contractors, including those working for Uber — are also encouraging companies to look into the use of such technology and processes for this area of expense management.

Doing so, however, requires consideration of what employees want, especially when it comes to tracking technology. Some might not mind being tracked at all hours (maybe they drive a company car, or have long, odd work schedules). Other workers might resist that, and want the ability to shut off an app’s tracking capability, or be able to adjust those settings on their own. Ignoring such aspects can lead to less buy-in among employees, and more resistance to a new expense management program.

That said, the general trend is clear when it comes to the changing aspects of mileage reimbursement. “You are going from zero visibility to having visibility,” Lackey said.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out our February 2019 B2B API Tracker Report 

TRENDING RIGHT NOW

To Top