Complementing Your Fleet of Company Cars with a Vehicle Reimbursement Program

Companies are looking to streamline their operations and reduce their expenses. Fleet management stands out as an area ready and waiting for improvement. Traditional company car need a high level of management and they’re also super costly. 

Businesses are complementing—or even replacing—parts of a vehicle fleet with a Vehicle Reimbursement Program (VRP) like Fixed and Variable Rate (FAVR) reimbursement which offers a flexible, cost-effective alternative for American businesses. 

In this blog, we’ll dive into the benefits of integrating a VRP with a fleet of company vehicles, exploring how this blended approach can optimize costs, improve driver satisfaction, and enhance operations.

The burden of managing fleet vehicles

The costs associated with company cars are pretty diverse. Fleet operators incur a lot of upfront expenses like lease payments and costs like maintenance, insurance, and fuel. Add depreciation into the mix, and fleet costs can quickly eat into a company’s budget. 

A recent study found that fleet maintenance alone accounts for up to 30% of total fleet management expenses, not to mention the average annual depreciation of nearly 20% on company-owned vehicles.

By mixing fleet vehicles with a VRP, businesses can shift a lot of the responsibility for maintenance, insurance, and general upkeep to employees — because with a VRP, employees drive their own vehicles. 

Programs like FAVR reimbursement can cover business mileage costs based on IRS mileage rates, reimbursing drivers only for business use without absorbing personal use charges. This approach is especially helpful for employees who need vehicles for business travel but don’t require company cars full-time, ultimately reducing fleet-related overhead.

There’s flexibility with FAVR reimbursement

The Fixed and Variable Rate (FAVR) reimbursement model is a smart tool for companies looking for a more flexible alternative to company cars. FAVR reimburses employees based on a customized mileage rate determined by the business. It accounts for variable costs like fuel and fixed costs like insurance, hence the name. It makes for a tailored option for companies with diverse driver needs.

Using FAVR, companies reimburse employees for actual business use, eliminating the expense of vehicles sitting idle outside business hours. Unlike traditional fleet programs, FAVR allows companies to scale vehicle expenses in line with employee travel patterns, reducing costs significantly. This flexibility means companies can offer an attractive incentive to employees who frequently drive for business purposes but don’t require a full-time company car.

FAVR means personal vehicle use for business travel

A FAVR reimbursement program is built around the concept that employees use their personal vehicles for work purposes, with reimbursements reflecting both fixed costs (like insurance and registration) and variable costs (like fuel and maintenance) associated with business mileage. This model offers several benefits, especially for employees who don’t need a company car full-time but still drive regularly enough for work. Here’s why it makes sense for some employees to use their personal vehicles for work instead of a company car.

Lower costs for business and employee: Personal vehicle use eliminates many of the fixed costs tied to company-owned vehicles, like ongoing depreciation and maintenance. For employees, it also reduces the hassle of swapping between a personal car and a company car, allowing them to drive a familiar, comfortable vehicle. FAVR offers a fair, tax-free reimbursement that covers actual business expenses without the company bearing the full burden of a leased or owned fleet vehicle.

Flexibility for low-mileage drivers: Employees who drive infrequently or only on an as-needed basis for work might find it more convenient to use their own car. For companies, maintaining a full fleet for part-time drivers means underutilized vehicles — which is costly. FAVR solves this by providing a reimbursement only when business mileage is incurred, making it a flexible option for workers who don’t drive as much as part of their main role.

Employee satisfaction: For many employees, using their personal car for work feels less restrictive and more personalized. They’re able to use their vehicle of choice and don’t have to adjust to a fleet model that may not meet their preferences or driving needs. The FAVR program means they’re fairly reimbursed, incentivizing them to keep their vehicle in good condition without having to worry about added wear and tear from personal use on a company-owned car.

Safer driving habits: When employees are behind the wheel of their own car, they’re often more conscientious and cautious. Personal vehicle use tends to lower the likelihood of risky behavior compared to driving a fleet vehicle that doesn’t carry the same personal attachment. Companies can reinforce this with telematics or safe driving incentives through the FAVR program, promoting responsible driving while reducing accident-related expenses and insurance costs.

Simplified admin and lower tax implications: With FAVR, companies can avoid  managing personal use chargebacks and the tax implications that come with company cars. Employees receive a tax-free reimbursement that aligns with IRS standard rate, eliminating the need for personal use tracking and tax deductions. This reduces admin overhead and offers a reimbursement process that’s easy for both employees and fleet managers.

Ultimately, FAVR offers a super practical and cost-effective solution for businesses with diverse driving needs. By allowing employees to use their personal vehicles and reimbursing them accurately, companies can optimize their fleet program, cut costs, and provide a flexible option that fits the modern workforce.

Meeting IRS requirements and reducing admin work

One of the main advantages of a VRP is its ability to align with IRS guidelines, allowing companies to offer tax-free reimbursements for business use of personal vehicles. IRS mileage reimbursement rates provide a framework, and FAVR reimbursement plans follow it by using accurate, location-based rates for mileage and expenses.

For fleet operators, this approach not only reduces tax liabilities but also streamlines admin tasks. Programs like telematics can be integrated with VRPs, which offers  real-time data on business mileage, location, and even driver safety metrics. With telematics, fleet managers have accurate data to substantiate reimbursements, reducing the need for annoying paperwork and ensuring compliance with IRS mileage rules and regulations.

Some hidden costs of company-owned vehicles

A company-owned fleet comes with hidden costs beyond the obvious ones, like fuel and maintenance. The personal use of company vehicles, for instance, can lead to complicated personal use chargebacks and often incurs additional tax reporting obligations. With a VRP, employees who use their personal vehicles for work can avoid these complications, allowing the company to reimburse only for actual business mileage without paying for non-business use. This cost-effective approach can be especially beneficial for employees who don’t need full-time access to a company car but do require a vehicle for occasional business use.

Driver satisfaction and incentives

Having a VRP at work allows mobile employees to drive vehicles they’re comfortable with and provides the flexibility to personalize their choice. When fleet programs transition from traditional company-owned or leased vehicles to a VRP, employees retain control over their vehicle choice, an incentive that can improve driver satisfaction.

Moreover, companies can incentivize safe driving habits through driver safety programs that integrate with VRPs. For example, some companies use telematics to track driver behavior in real-time, allowing for personalized feedback and recognition for safe driving records. Data-driven incentives can improve overall fleet safety, reduce insurance and vehicle expenses from accidents, and improve employee morale.

The Bottom Line

A Vehicle Reimbursement Program (VRP) is a modern, flexible solution for fleet operators facing high fleet costs and operational inefficiencies. By reducing the need for company-owned vehicles, streamlining administrative tasks, and improving driver satisfaction, VRPs offer cost savings and a strategic advantage to companies across the U.S.

For companies seeking a sustainable fleet solution that aligns with IRS guidelines and provides an adaptable approach to fleet management, adding a VRP to a fleet of company vehicles can be transformative. From reducing maintenance costs and depreciation to supporting sustainability initiatives with EVs, the advantages are clear.