When you provide mileage reimbursements to your employees, it becomes highly crucial that you also have a clear and concise company mileage reimbursement policy. You may ask, what does it mean? when you are already reimbursing your employees for mileage. Well, an easy-to-understand policy helps simplify the process for you and your employees. It gets rid of any confusion that the employees may have while filing their expenses and eventually creates a smooth mileage reimbursement system.
Here is an infographic to help you understand the importance of a mileage reimbursement policy and the elements to be covered to make it effective.
Whenever there is the usage of a personal vehicle by an employee, the amount spent on gas must be reimbursed. This reimbursement should come under an accountable reimbursement plan to not be taxed.
Hence, there is a need for a proper policy that defines all the information about mileage reimbursements. It should include how to calculate mileage reimbursement, how to file reimbursements, how much of the amount is reimbursable, what are the standard rates, etc. The reimbursement policy benefits both the employees and the employer while keeping the reimbursement process going smoothly.
Your policy must include the factors that need the most clarification. The policy itself needs to be flexible, and every business should create a policy that best suits them. Moreover, the policy must be updated as and when required.
There are no fixed guidelines or pre-defined formats to create a policy for mileage reimbursement. However, here are a few general suggestions for effective policy formulation:
Define what the mileage reimbursement rate is and how the calculation is made.
The mileage reimbursement rate is generally defined as the cost per mile set by businesses to reimburse employees when they use their personal vehicles for business purposes. “Personal vehicles” include cars, bikes, and vans registered to the claimant.
While calculating mileage reimbursement, the employer can either go by the standard mileage rates set by the IRS or accept the mileage receipts submitted by the employee.
Here’s an example of when the standard rates are applied: When the federal mileage rate is 56 cents per mile, multiply this rate by the number of miles the employee drove for a period of time. If the employee drove 100 miles in July, the reimbursement would be $56, and so on.
If you prefer not to use the standard mileage rates, you have the option of reimbursing mileage in the form of Flat Car Allowance or Fixed & Variable Rate Allowance (FAVR) as per the IRS guidelines.
However, if you opt for a non-standard mileage reimbursement rate, you should prepare your employees accordingly. If you decide to opt for a lower reimbursement rate, you must mention in your mileage reimbursement policy that they may be able to claim the remaining amount in their tax return.
Alternatively, if you decide to go over the standard reimbursement rate, you must tell your employees that the reimbursement amount falls under taxable income; hence, it is no longer deductible.
Other than that, you must predetermine the distance by allowing only the most efficient routes to be taken by the employees. You can use business travel management and expense reimbursement with a mileage reimbursement functionality to help calculate the shortest distance and reimburse accordingly.
Your reimbursement policy must also include the categories that the company will not reimburse. The non-reimbursable categories can be as follows:
The regular commute is the average distance an employee travels to reach their work destination. According to the IRS, employees cannot claim daily work commutes under mileage reimbursement because they are not classified as business travel expenses.
Hence, while preparing your policy for mileage reimbursement, you must clearly state that the company will not reimburse regular commutes, and filing any such claims might amount to expense fraud.
Sometimes, while traveling for work, employees might take a detour to run some errands. The miles traveled for such chores are neither beneficial nor necessary for business. Hence, your mileage reimbursement policy must clearly state that personal chores or errands will not be reimbursed.
However, in some cases, you might require your employees to use personal vehicles to run some business errands. For instance, they might need to drive to buy office supplies. Or they might need to visit the bank for official work.
In such situations, the company must pay for the miles employees have traveled. Hence, your policy must differentiate between business and personal errands and be straightforward about reimbursing miles for business errands.
The mileage policy for employees is best explained with a few examples of what is acceptable for mileage reimbursement claims and what isn’t. Here is a couple of them you can refer to.
An employee travels from the main office to a client meeting at the Miami Convention Center, then stops for lunch and goes to another meeting at the Miami Chamber of Commerce. Finally, returning to the main office. The total mileage for this trip can be reimbursed.
An employee leaves home to attend an all-day meeting. The employee returns home without any deviations after the meeting. The total distance traveled was 65 miles. The employee’s normal commute is 10 miles. Here, 55 miles can be reimbursed.
On the way to a meeting, an employee takes a deviation to run personal errands. After the meeting, the employee drives to the office and then home. The mileage reimbursement will be allowed for the drive to the meeting minus the deviation and the mileage from the meeting to the office only.
The IRS has four main requirements for mileage reimbursement claims to be included in the accountable reimbursement plan. It is advisable that the employees keep a log of these details as it will help them in filing expense claims. These are:
Once these points are covered, it gets simpler and easier for the employees to file their expense reimbursement claims.
A precise and concise mileage reimbursement policy helps employees stick to it and improves compliance. Moreover, it helps you avoid travel expense fraud and saves good bucks for the company.
Get a free mileage reimbursement policy template that will help you save time while creating a customized policy for your organization.
Providing reimbursements according to a proper mileage reimbursement policy can be good for your brand image and can be a great way to improve employee morale. What takes a notch is when you make reimbursements simpler and less time-consuming with travel & expense management software like ITILITE.
To find out how you can get near 100% compliance on your policies, book a free demo.
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