When should I pay Cents per Mile in 2023? Finance and Ops perspectives
Finance and operations leaders often ask us when to pay the IRS standard Cents per Mile rate to their company drivers. We tell them when it is optimal.
What is a Cents per Mile (“CPM”) program?
Cents per Mile programs, which pay the IRS standard mileage rate, are more efficient than company cars and traditional auto allowances.
They are less efficient, however, than FAVR and Tax-Free Car Allowance programs. For this reason, Cardata recommends CPM programs for occasional driving—defined as fewer than 5,000 miles per year.
Read on to learn the details!
A Cents per Mile reimbursement program, like the one Cardata offers, is a reimbursement program based on the IRS standard mileage rate.
Each year, the IRS suggests a new CPM rate. In 2022, ¢58.5 is the suggested rate to be reimbursed to drivers for business mileage. It is a variable rate, i.e. it is paid in accordance with the number of miles driven.
For example, take one driver’s yearly mileage:
Business miles: 25,000 miles
Annual reimbursement: $14,625
Average monthly reimbursement: $1218.75
Companies that reimburse on a Cents per Mile model pay a sum, such as the above, to their drivers every month.
Why do CFOs and operations executives like CPM?
Managers, like CFOs and operations executives, like that CPM programs empower employees to drive their personal vehicle for work. This is a major advantage that CPM programs have over company cars.
Fleets of company cars are expensive to purchase and maintain. They also often sit idle, depreciating—as they have in the last two years of reduced driving. Furthermore it is difficult to move company cars between drivers, as when one driver leaves and another joins the company.
CFOs and ops execs also love that CPM programs guarantee that the whole reimbursement will be paid without tax. This is the advantage that CPM programs have over allowance. A traditional auto allowance is assessed for both payroll and income tax, leading to major inefficiencies.
Why do CFOs and operations executives dislike it?
They dislike the difficulty of record keeping with CPM programs. In order to justify the mileage—i.e. prove that a trip was legitimately business-related—the IRS requires precise and detailed log books. It is time consuming, for both drivers and admins, to maintain and process these mileage logs.
That is why companies outsource their CPM programs to Cardata: we have a mobile mileage capture application, Cardata Mobile, that records and stores all the information that the IRS needs to see.
Our app is “set it and forget it,” meaning drivers just need to set the app up once, drive, and get reimbursed. Automatic mileage capture saves large driver populations thousands of hours per year
Finance and ops also dislike the implementation of CPM programs in a workforce that has historically used company cars. Some drivers are understandably upset at losing their fleet vehicle. That is why change management—another service we offer—is so crucial.
They also do not like the fact that the CPM rate does not accurately reimburse drivers. In the above example, $1218.75 per month is significantly more than it costs to drive for work.
Additionally, driving expenses vary by region, so while some drivers might need nearly that much per month, others will need significantly less.
So, why would a CFO choose to pay CPM?
If all of your drivers cover more than 5,000 miles per year, Cents per Mile is not the program for you. Instead, one of these is the right choice:
However, if all of your drivers drive less than 5,000, CPM could be ideal. When outsourced, this program is a simple and effective remedy to the problems posed by allowance and company cars.
Is your company somewhere in between? Some drivers above, others below that cutoff? Then a hybrid program is right for you. Hybrid programs are especially difficult to manage in-house, because the IRS has different reporting and compliance requirements for each program.
Cardata, however, has been administering hybrid programs for 22 years.
Are you on the hunt for the right vehicle reimbursement program? Our blog is full of information to get you started.