The Fleet Reimbursement Shift: Why a Third of Companies Are Going Mileage-Based

Survey data finds that 30% of eligible fleet programs will transition to personal vehicle reimbursement in the next 3 years.

This speaks to the fact that when companies ditch a flat, taxable car allowance and move to an accountable mileage program, they usually cut their vehicle program costs by around 30 percent in the very first year.

Let’s unpack why those savings are so big, how mileage-based reimbursements actually work, and what steps organizations can take to capture, and protect, those gains.

The Hidden Costs of Flat Car Allowances

Flat car allowances might look simple, but once taxes hit, they could be one of the most expensive ways to pay for employee vehicles. 

Because they’re treated like regular income, every dollar gets taxed on both the employer and employee side. That means the total cost is about 30 percent higher, while the driver only takes home roughly 70 percent of the stated amount.

And that’s just the start. Flat allowances don’t account for regional cost differences in things like fuel, insurance, and maintenance. Drivers in expensive urban ZIP codes end up shortchanged, while those in lower-cost areas are effectively overpaid, which hurts both fairness and budget discipline. 

How Mileage Reimbursement Programs Work

Fixed and Variable Rate (FAVR) programs solve the allowance problem by splitting vehicle costs into two tax-free parts. 

A fixed monthly payment covers predictable expenses like depreciation, insurance, and registration. A variable rate then reflects real-time, ZIP-code-level changes in fuel and maintenance. 

So, for example, a driver in Los Angeles gets a higher variable payment than someone in Des Moines because gas prices there are higher.

The best part? Both the fixed and variable pieces are fully tax-free under IRS accountable plan rules, as long as IRS rules are followed. 

Where the Savings Come From

The first chunk of savings shows up immediately when payroll taxes disappear. Turning a $600 monthly allowance into a tax-free FAVR payment means that your team doesn’t have to pay out payroll taxes on that amount. 

Then there’s better mileage discipline: since every mile is verified through an accountable plan, inflated mileage claims vanish.

There are other wins too. Under FAVR, drivers keep their personal insurance policies, so companies avoid pricey commercial auto premiums, which could cost twice as much. 

Admin time drops as well, since outsourced mileage platforms can cost about half the salary of one HR staffer and handle onboarding, compliance, and reporting automatically.

Making the Switch to FAVR

The companies that realize the full 30 percent savings typically follow a few key best practices. High-mileage employees, meaning those driving more than 10,000 business miles a year, often belong in the FAVR program.

But remember, compliance is critical. 

Partners like Cardata help companies stay on top of IRS rules while keeping mileage reimbursement simple and stress-free.

Insurance compliance is a big one—drivers upload their coverage through the app or web portal, and Cardata handles the rest, sending reminders if anything’s missing or expired. It’s an easy way to reduce risk and keep reimbursements tax-free.

Cardata also monitors all the key pieces of a FAVR program, from vehicle type to mileage thresholds, making sure everything stays compliant. 

GPS tracking logs trips automatically, so there’s no need for manual entries. Managers can approve mileage and track compliance through an intelligence reporting dashboard (like Cardata Cloud), while drivers get real-time updates in the app. 

With built-in tax checks and hands-on support, Cardata takes the pressure off your team and keeps the program running smoothly.

Conclusion and Next Steps

Switching from a flat car allowance to an IRS-compliant, mileage-based reimbursement, especially a FAVR program, can cut wasteful payroll taxes, aligns payments with real costs, and often reduces spend by around 30 percent.

Want to see how much your company could save? Talk to our experts today and see what’s possible.

Book a demo