Getting paid for miles logged: It’s something that has been around for decades, as long as wheels have met pavement in pursuit of profit — namely, when corporate road warriors are out in the field on official business.
In Illinois, and a handful of other states, changes in how employees are reimbursed for business-related expenses herald changes on a broader scale, and in how firms use technology to make sure that expenses are being recorded accurately. In the case of Illinois, an amendment to the state Wage Payment and Collection Act means employers must reimburse for “all necessary expenditures” incurred in the course of normal duties, and need not require the submission of receipts.
In the latest Topic TBD, Danielle Lackey, chief legal officer of Motus, said the law across Illinois — and states such as California, Massachusetts and several others — represents a shift from usual practices. Before those state-by-state mandates, employers usually opted to give road-bound employees who use their personal vehicles a monthly allowance to cover mileage costs.
“But the employer does not have the obligation to know, precisely what that cost is,” Lackey told Karen Webster. With this new position, reimbursements are considered wages in Illinois, though they are not taxable wages, she clarified.
Miles To Go For Mileage Reimbursement
“The biggest category that we are going to see come into play,” Lackey added, “will be reimbursement for vehicles, because that is a big cost” to firms across several verticals.
Tracking the mileage becomes challenging to both employer and employee, but the technology to do so does indeed exist. Lackey noted during the interview that Motus offers a cloud-based platform that tracks mileage per employee.
The traditional method of offering up allowances — and accepting receipts and written reports across a variety of expenses, but especially mileage — has been a low-tech, high-cost approach. Here, the employee simply tells the employer what the mileage has been. In tandem, there tends to be exaggeration by employees on business mileage, pocketing some extra money and taking a bit off employers’ bottom lines.
Lackey stated that when looking at the difference between auto-capture technology that comes with expense-reporting automation apps versus someone who simply reports their mileage manually, there can be a 15 percent to 20 percent cost savings. Beyond mileage, there are other costs involved that factor into consideration over personal vehicles being deployed during work, such as registration, taxes and insurance.
She noted that IRS guidelines cover fixed and variable rate reimbursements, as tied to mileage reimbursement plans. “This would be quite difficult to manage manually,” she said of companies that may have several employees on the road at any one time. Variable costs are particularly tough to track, as mobile employees can pay more for gas in one state than another and even across local landscapes, where city rates can be more than those seen at a small town fill-up station.
“It is important to have the data and the algorithms and the system in place” to separate those costs, calculate them and apply reimbursement rates, said Lackey. In the drive to embrace that technology, she told Webster that there are solutions from FinTech firms that can help employers both accommodate the law and be fair to their employees.
Best practices include employers deploying auto-capture solutions (such as those offered by Motus), which grab data as employees are driving. After all, she said, “the notion that an employer is going to figure out what the depreciation costs are” and what tax issues may arise “is not really tenable in terms of the time and the cost it would take to do that individually.”
Lackey noted that pharmaceutical firms or beverage and food enterprises, for example, may have been giving their employees an allowance, and “they may likely have been [doing] it in a way that the allowance is treated as a perk, never additional compensation” — a practice that will change across Illinois and the other states with newly changed wage mandates. For some of these companies, it is rather easy to fall afoul of federal laws — if an employee incurs costs that, netted out, mean they are making below minimum wage, the employers “are in trouble … and they should already be thinking about these things.”
Living In A Data Age
Lackey stated that we are living in a data age, one where companies have a fairly good understanding about where their expenses lie. “But if you think about hotels and business lunches, those all have receipts, and they are easier for a company to track,” she told Webster. Fuel and other vehicle-related expenses are not as easily evidenced by receipts, and therein lies the value of auto-capture technology.
Motus’ own approach is that the cost of the actual technology should be de minimis, said Lackey, who stated that firms deploying Motus’ cloud-based solutions have a return on investment (ROI) from within six months to a year. The end result in the wake of the legislation over mileage and business-related expenses in general can be extended to other areas of technology in the service of work — and as bringing one’s own device becomes a standard daily practice.
“As technology and our lives evolve,” she said, “these things, [such as devices], fall under an umbrella that they are there to help you do your job … so it won’t be so much that we legislate about cars and phones individually. People are not working and sitting in offices anymore. There is a lot of blurring the lines of what is work and what is personal.”
Lackey said the blurring lines mean that employers must get ready to deploy technology to comb through information and make sure employees are paid what they are owed. “It absolutely comes down to having the data. Having a policy in place — and the new law is very clear about this — and making sure you follow it means ‘you are good’ as long as the policies are reasonable,” she told Webster.
For both employers and employees, “the bottom line is what matters … but also fairness matters,” she said.