The Power Of Vehicle Reimbursement For Sales Teams

Introduction 

It can be tempting to run your vehicle reimbursement program in-house. However, for many companies, outsourcing the management of a vehicle reimbursement program can have significant benefits — such as reducing the workload for administrators, helping to ensure compliance, and unlocking access to powerful vehicle reimbursement software. 

This is especially true for companies with many employee drivers – such as companies with a large sales team where employees regularly drive for work. The more drivers a reimbursement program has, the more complexity and management are required. Vehicle reimbursement software can help keep your program compliant, well-documented, and organized. The best vehicle reimbursement platforms offer access to robust customer support, ensuring your company gets meaningful and customized advice. 

Why vehicle reimbursement?

While some companies use a fleet or company car program, another popular option is having employees use their personal vehicles for work. When employees drive their cars for work, they incur business expenses, and vehicle reimbursement programs help compensate them for these costs. 

Compared to a company car program, a vehicle reimbursement program gives employees more freedom and control over what kind of car they drive. For companies, a vehicle reimbursement program can reduce the costs and liabilities of owning a fleet of company cars. 

It’s also important to note that vehicle reimbursements can be tax–free when compliant with IRS regulations. This is a significant benefit, helping reduce the income tax burden for employee drivers and businesses to reduce the amount of payroll tax owed. 

Vehicle reimbursement for sales teams

There are many different kinds of employees who drive their vehicles for work – consider technicians doing site visits, merchandisers going to stores, and more. Salespeople are another common employee who must drive for work regularly. While some sales are done over the phone or email (inside sales), in-person visits and meetings are often integral to the sales process. With that comes necessary business travel and the costs associated with it. 

Companies with a large mobile team are best served by a vehicle reimbursement program that accommodates many employees and is easily scalable. Compared to a company car program, having employees use their personal cars can help sales teams quickly grow, as a new car isn’t required for each new hire. If sales teams shrink, company-owned or leased empty cars won’t sit on the lot, unused and losing value. 

Additionally, businesses often have salespeople in different geographies, giving them access to more customers. With employees located in multiple states, each with its regulations, there’s greater complexity in vehicle reimbursement. A robust vehicle reimbursement program needs to account for these regional differences. For example, Fixed and Variable Rate (FAVR) reimbursement programs calculate rates based on an employee’s location. 

The vehicle reimbursement landscape

When choosing a vehicle reimbursement program, it’s essential to be thoughtful and deliberate in your choice. It’s best practice to do plenty of research and select a program that best suits your company’s unique requirements and needs. 

Cents per Mile

With a Cents per Mile program, employers reimburse employees based on the business mileage driven. This mileage is eligible to be tax-free when it follows IRS guidelines, which include tracking essential details of all business mileage and following other IRS rules for an accountable program. Reimbursements are paid based on the IRS standard rate, a regularly changing IRS-defined cents-per-mile rate. 

This program helps compensate employees for business mileage. However, on its own, Cents per Mile programs can leave employees paying out-of-pocket for other business-related vehicle expenses. 

Watch: When should you reimburse at the IRS standard rate? Mike’s Mile a Minute 

Lump sum allowance

In a lump sum allowance program, employee drivers are regularly provided with a predetermined, fixed rate amount. This is a simple option for vehicle reimbursement, and helps companies to budget and plan for their vehicle reimbursement program.

However, these allowances (without proper records) are taxable, so providing employees with a lump sum will likely leave them with an insufficient amount to cover their business expenses — which could lead to employee dissatisfaction. In turn, if the amount is more than they spend on business expenses, it can cost the company unnecessarily.

The IRS requires them to be accountable for lump sum allowances to be eligible for tax benefits. In an accountable allowance program, employees must track details surrounding all relevant business mileage and more, according to IRS Publication 463.[1]

Fixed and Variable Rate (FAVR)

Consider a Fixed and Variable Rate (FAVR) vehicle reimbursement program for a more robust option. With a FAVR program, employees are reimbursed for fixed and variable expenses related to business use of their personal car, which can often help make reimbursements more accurately reflect actual business expenses. Variable expenses include fuel and maintenance, while fixed expenses can include costs like insurance payments, depreciation, and more. 

Like other vehicle reimbursement programs, IRS rules must be followed to access the potential tax-free benefits. All business expenses must be documented, and business mileage must be logged according to IRS guidelines. Compliance is essential to maintain tax savings as with other accountable programs. 

With many different programs, picking one that best fits your organization is crucial. By outsourcing your vehicle reimbursement to experts, you can also get advice about which program matches your business needs and tips for setting it up. 

The benefits of outsourcing vehicle reimbursement

Outsourcing vehicle reimbursement can have significant benefits for organizations. Significantly, it can help save employees time – freeing them to focus more directly on their work. Many employees can benefit by streamlining the processes of tracking business mileage and managing employee claims, including employee drivers, HR teams, finance departments, and other administrators. 

Beyond the time saved, outsourcing can help to promote compliance with IRS regulations. As discussed, following IRS regulations is essential for the tax benefits associated with accountable programs. Working with a company specializing in vehicle reimbursement can help your team stay on track with any changes and adjustments to IRS regulations, helping ensure compliance. 

A strong and well-managed vehicle reimbursement program could also help your company attract sales talent. A vehicle management program that’s easy for salespeople and helps them get tax benefits is a solid addition to any benefits package. When salespeople must drive regularly for work, straightforward and intuitive vehicle reimbursement software can improve employee satisfaction and retention.

For companies with employees who drive for work, it’s best practice to be deliberate when choosing and establishing a vehicle reimbursement program. Doing adequate research and picking the right program helps ensure you have the best option from the beginning, allowing your team to avoid the switching costs to change programs down the line. 

Outsourcing your vehicle reimbursement program can make a significant difference for companies. Especially for organizations with large and growing sales teams, outsourcing can simplify the complex administrative processes that come with many employee drivers. 

In turn, vehicle reimbursement software also makes it easier for your employee drivers to record mileage and get reimbursements paid out. Vehicle reimbursement software is a powerful tool, and embracing innovation and tech can help ensure your business is taking advantage of all tools available to help succeed. 

Conclusion

If you’re curious about outsourcing your vehicle reimbursement program through robust software, consider Cardata, which provides a suite of tools for businesses to quickly and simply manage their vehicle reimbursement – automating mileage tracking, streamlining administration and program management, facilitating reimbursement payments, and generating reports that give you easy visibility on your vehicle reimbursement program. Cardata also works directly with teams to build a custom, hybrid vehicle reimbursement program based on company needs, culture, and more. 

Sources

[1] About Publication 463, Travel, Gift, and Car Expenses | Internal Revenue Service 
Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants nor agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.