A retention cycle or retention period is a key variable used to calculate auto reimbursements using a vehicle profile. The retention cycle is the number of years a vehicle profile is assumed to be owned before it is traded in. On a FAVR program, this is typically between 3 and 7 years.
Once a retention cycle is selected, it is used to calculate the depreciation component of a driver’s fixed reimbursement by spreading out the cost of the vehicle profile (less its retention value) over the number of months in the retention cycle.
Since cars depreciate faster earlier in their lives, shorter retention cycles lead to higher fixed reimbursements.
Retention cycles are also used to determine FAVR vehicle age compliance. If a driver’s personal vehicle is older than the retention cycle used for their vehicle profile, their reimbursement will be tested for taxable income.
To learn more, read about retention cycles — including how they’re calculated and impact depreciation in a FAVR program. Vehicle reimbursement partners like Cardata can help companies select a retention cycle that’s appropriate for their drivers. To learn more about outsourcing your company’s FAVR program, speak with a Cardata expert and find out the benefits.