Outsourced FAVR Programs Slash Fleet Costs by 30% and Deliver 250% ROI

An increasing number of organizations are reassessing traditional fleets of company-owned vehicles and exploring alternative approaches. 

Implementation of IRS-compliant Fixed & Variable Rate (FAVR) programs enables companies to reduce vehicle program expenditures by approximately 30%. 

This article outlines how finance, human resources, fleet, and procurement leaders can leverage these savings to achieve a 250% return on investment within two years by outsourcing FAVR administration rather than maintaining an in-house fleet.

The Limitations of Company-Owned Cars

Company-owned vehicles do appear convenient: the company purchases the vehicle, provides it to the employee, and mileage reporting is minimal. However, these vehicles often erode profitability through rapid depreciation, elevated insurance premiums, and ongoing administrative demands. 

Commercial auto insurance can cost twice as much as a comparable personal policy, and additional labor devoted to titling, registration, fuel-card reconciliation, and IRS documentation further increases expenses, which are often not clearly reflected on the balance sheet.

Moreover, company car programs lack flexibility and scalability. Organizations risk having vehicles sit idle while awaiting assignment to new employees, or incurring additional costs when selling unused vehicles.

Another Option: A Fixed and Variable Rate Program

A Fixed and Variable Rate (FAVR) vehicle reimbursement program converts a significant capital expense into a flexible operating cost. 

FAVR reimburses employees for two categories of expense: fixed and variable. Fixed costs, including insurance, registration, and depreciation, are customized based on each driver’s zip code. 

Variable costs, such as fuel, tires, and maintenance, are adjusted according to actual local prices.

Companies with at least five drivers logging more than 5,000 business miles per year, and that meet other FAVR eligibility criteria, such as vehicle age and price limits, may qualify for the program. 

Eligible FAVR plans are accountable and tax-free, meaning that as long as program requirements are met, reimbursements are not subject to income or payroll taxes.

The Benefits of FAVR

Transitioning from a taxable allowance or company-owned fleet to a FAVR program can reduce overall vehicle program costs by up to 30%. 

In addition, FAVR ensures drivers receive fair and accurate reimbursements that reflect actual driving expenses, taking regional differences into account.

The program also shifts primary liability from the company to each driver’s personal insurance policy, potentially lowering the employer’s exposure. 

Drivers benefit as well, gaining the flexibility to select vehicles that suit their lifestyle while avoiding the personal-use deductions typically associated with company cars.

Switching to FAVR

Many companies opt to work with a third-party, expert vehicle reimbursement partner to help make managing a FAVR program simple and streamlined. 

A reimbursement partner like Cardata can help teams stay compliant with IRS guidelines, support with insurance compliance, and more. Powerful software can provide teams with insightful, AI-powered insights that can help easily guide company decisions.

Also, GPS-powered mileage tracking apps can help reduce the manual work that comes with maintaining detailed business trip logs that are required for IRS compliance. 

The average ROI for an outsourced FAVR program is 250%, where the cost of the reimbursement software is significantly less than how much your company could save, over a 24-month period. It’s clear that switching to FAVR could have big financial benefits for your team.

Get Started With FAVR

A decade ago, FAVR was primarily utilized by large field sales teams. Today, automation simplifies much of the program’s complexity, allowing any company that meets IRS guidelines—such as having at least five mobile employees—to access the same advantages.

To determine whether a 250% return is achievable for your organization, review last year’s depreciation, insurance, maintenance, and fuel expenses, and contact Cardata to learn how a well-managed, outsourced vehicle reimbursement program can deliver significant benefits. Curious about how FAVR could work for your business?

Schedule a demo with Cardata’s experts to explore how a well-managed vehicle reimbursement program could benefit your team.