Why outsource vehicle reimbursement programs?

Introduction

Successful organizations are constantly seeking innovative approaches to streamline their operations efficiently. One area that frequently garners attention is the management of vehicle reimbursement programs, encompassing methodologies such as Fixed and Variable Rate (FAVR), Cents-Per-Mile (CPM), or a 463 tax-free car allowance (TFCA). While these programs may initially appear to offer convenience and control, a closer examination reveals a host of potential challenges and drawbacks that can impede progress and hinder success, namely, when a company chooses to run these programs in-house. In this article, we delve into the negatives associated with running a vehicle reimbursement program in-house and why outsourcing may be the optimal choice for organizations striving for enhanced operational effectiveness, cost-efficiency, and peace of mind. By critically analyzing the pitfalls and limitations of in-house enterprises, we aim to equip decision-makers with the insights they need to confidently navigate the complex terrain of vehicle reimbursement programs.

Administrative burdens 

Managing a vehicle reimbursement program in-house may seem like a prudent approach to cutting costs, but it comes at the expense of shouldering a significant administrative burden. No matter the kind of reimbursement program you opt for, the decision to keep it in-house demands nearly constant attention to the intricacies involved. In other words, it’s not just a few extra duties that company overseers can check off of a to-do list. 

By taking the in-house route, you are willingly embracing a labyrinth of administrative tasks. From meticulously tracking and verifying mileage logs to calculating accurate reimbursements, each step requires lots of time and attention to detail. Cutting corners isn’t really an option, unless you’re equipped to deal with the Internal Revenue Service (IRS) on a consistent basis. 

That’s why it’s important to consider the potential benefits of outsourcing this endeavor. By enlisting the assistance of a dedicated provider, such as Cardata, you relieve yourself of a weighty administrative grind. Outsourcing grants you the freedom to refocus your energy on core business functions, enabling your team to concentrate on tasks that propel your organization forward – not just on the things that keep your cars on the road.

Intensive program setups

Embarking on the journey of managing a vehicle reimbursement program in-house, whether it be a FAVR, CPM, or 463 program, each program demands a rigorous setup process that cannot be underestimated. The path to a well-functioning program requires a number of intricate steps. 

Admins must delve into the complexities of FAVR calculations, accounting for fixed and variable costs, market trends, and ever-changing variables. Such a task demands expertise, research, and a knack for number crunching. Moreover, compliance measures loom as an essential aspect of program setup. The web of tax regulations must be carefully navigated, with a deep understanding of the IRS guidelines and their application to ensure accuracy and adherence. Failure to do so could lead to costly consequences, making compliance a non-negotiable priority.

Mileage apps: worth the cost?

Whether you choose to invest in a mileage-tracking app or resort to the traditional (and inefficient) method of maintaining analog mileage logs, there are pros and cons to consider. Implementing a mileage-tracking app undoubtedly incurs costs. 

However, it is important to recognize that these apps bring with them a myriad of benefits that streamline the process and save valuable time. Indeed, mileage tracking apps have revolutionized the way we record and manage mileage by automating the tracking process, reducing human error, and providing convenient features like GPS integration, expense categorization, and data synchronization. 

In-house reimbursement program management means that you have to pay for access to these high-tech apps, anyway. These apps, plus in-house admin, cost just as much or more as outsourced program management teams, meaning in-house overseeing is inevitably inefficient for one’s bottom line. 

So, mileage apps are more worthwhile when they come together with program administration from an outsourced reimbursement provider.

Outsourcing means better payment processing and reporting solutions

One notable concern is the lack of access to efficient payment processing and comprehensive reporting. Without the proper tools and systems in place, managing reimbursements can become a daunting task. Reporting solutions provide valuable insights into program efficiency and compliance, enabling administrators to make informed decisions and identify areas for improvement.

Furthermore, handling payroll can become more burdensome for HR departments. With an in-house program, HR teams bear the responsibility of calculating and processing reimbursements accurately and on time. This additional workload can strain resources and potentially lead to errors, which may impact employee satisfaction and overall program effectiveness.

Without robust administrative management tools, keeping track of program details and ensuring compliance can be challenging. It is essential to have a centralized system that streamlines administrative tasks, such as mileage verification, reimbursement approvals, and documentation management. When it comes to compliance, organizations must be prepared for potential audits by the IRS. In such instances, having well-documented records and a comprehensive program in place is crucial. Cardata’s direct pay solution, for instance, simplifies the reimbursement process, ensuring accurate and timely payments while maintaining compliance.

Increased risk of compliance lapses

When running a vehicle reimbursement program in-house with only one or two administrators, the risk of compliance lapses increases significantly. The multitude of factors involved in maintaining compliance, such as vehicle age, vehicle cost, insurance, mileage, and driver minimums, demand diligent oversight and expertise.

• Vehicle age: This is a critical aspect to consider, as different reimbursement programs may have specific requirements regarding the age of vehicles eligible for reimbursement. Monitoring and verifying vehicle age can be a complex task, as it requires staying updated on regulations and ensuring that reimbursements align with program guidelines.
• Vehicle cost: Accurately assessing vehicle cost is crucial to determine appropriate reimbursement rates. The administrator must navigate through pricing databases, accounting for depreciation and other relevant factors to establish fair and compliant reimbursement amounts. 
• Insurance: Insurance coverage is another area where compliance lapses can occur. Validating and tracking insurance policies for all vehicles in the program is essential to mitigate risks and ensure adequate coverage.
• Mileage: Mileage verification presents yet another compliance challenge. Administrators must meticulously track and verify mileage logs to ensure accuracy and compliance with IRS guidelines. This process can be time-consuming and prone to errors, particularly without automated mileage tracking systems or mileage tracking apps.
• Mobile workforce size: Adhering to driver minimums is essential for compliance. Some reimbursement programs may require drivers to meet specific mileage thresholds or usage criteria. Tracking and enforcing these minimums is crucial to ensure program compliance and fair reimbursement.

Scalability issues

One aspect that often poses a challenge when running a vehicle reimbursement program in-house is scalability. Reimbursement programs may encounter difficulties when it comes to accommodating changes, such as adding or subtracting drivers from the program. Scaling a program to accommodate new drivers involves extensive administrative work, including updating documentation, verifying driver information, and adjusting reimbursement rates accordingly. Without a streamlined system in place, this task can become cumbersome and time-consuming, potentially affecting the efficiency of the program.

Likewise, removing drivers from the program can also present challenges. Whether due to changes in employment or other factors, removing drivers requires careful management to ensure proper documentation and reimbursement adjustments. Failure to handle this process accurately and efficiently can lead to potential compliance issues and administrative headaches.

To overcome these scalability challenges, it is crucial to establish scalable systems and processes from the start. Implementing automated tools and solutions can simplify driver onboarding and offboarding processes. These tools can streamline documentation, automate reimbursement adjustments, and ensure compliance with program guidelines. Outsourcing can provide scalability benefits; partnering with a dedicated reimbursement program provider allows organizations to tap into their expertise and resources, making it easier to accommodate changes in driver numbers while maintaining program efficiency.

Conclusion

Managing a vehicle reimbursement program in-house offers some slight cost-savings but comes with an extensive administrative burden. Setting up the program requires meticulous legwork, including calculating FAVR rates, implementing compliance measures, and choosing between mileage-tracking apps or logs. While mileage tracking apps can save time and reduce errors, they come at a cost, even when you’re running an in-house program. 

Moreover, in-house programs lack efficient payment processing and robust reporting, burdening HR with payroll tasks and potentially compromising program efficiency and compliance. Compliance lapses become a risk with a single administrator overseeing factors like vehicle age, cost, insurance, mileage, and driver minimums.

Scalability becomes a challenge when adding or removing drivers from the program without streamlined systems in place. To address these concerns, outsourcing and utilizing technology-driven solutions can alleviate the administrative burden, enhance compliance, and improve program scalability. Ultimately, careful consideration must be given to the trade-off between cost savings and the administrative complexities involved in managing a vehicle reimbursement program in-house.

_{^{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 or 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.}}