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Commuting Mileage Reimbursement: Stop Paying Employees for Driving to Work

Andjelka Prvulovic
Last update on:
November 2, 2022 6:28 AM
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One of the common questions regarding mileage reimbursement is whether the commute miles to the place of work and vice versa can be compensated.

While some teams need help understanding the reimbursement rules, others find it hard to implement mileage and commuting disallowance. Still, it’s important to get these right so that you can reimburse your employees for their miles fairly, ensure compliance and save your company’s money.  

The IRS made it pretty clear: companies are not allowed to calculate trips from the employee’s home to their place of work as deductible. However, there are some not-so-clear-cut cases you should be aware of. 

That’s why today, we’ll dive into the topic of commuting mileage reimbursement. We will determine what the IRS considers a commute, learn the difference between business and commuting miles and discuss the exceptions.

We will also consider how Timeero can help your company manage your employees' business miles.

To clarify the topic of commuting mileage reimbursement, let’s begin with defining the basic concepts.

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What Is Considered a Commute?

Following the IRS, a commute is “the cost of transportation between your home and your main or regular place of work.”

According to the IRS, commuting doesn't fall under the hours worked category and is considered personal travel. 

But is commuting mileage tax deductible?

As essentially a personal trip, commuting mileage costs do not qualify for a tax deduction. 

What Is Commuting Mileage?

So, we determined that commute miles are the distance employees travel from their residence to their primary workplace and back. 

The IRS finds that it is a person's personal choice to accept certain working conditions. The commute length may affect whether candidates want to work for a company. They may also choose a job depending on whether the company will reimburse them for their long commutes.

Companies may choose to compensate their staff for commuting to work. In that case, they won’t be able to deduct taxes for commuting mileage

However, the IRS makes exceptions in the following cases: 

  • an employee has a second job and travels there directly from their first job without a break,

  • an employee travels to a temporary workplace, which differs from their primary workplace, directly from their home.

What Are Business Miles?

However, to better understand the issue of commuting mileage reimbursement, we need to make a clear distinction between commute and business miles.

Business miles are the distance an individual travels from one workplace to another during their working hours.

Business miles are typically the miles an employee drives using their private vehicle. Timeero, the automated GPS mileage tracker software, helps you easily handle the issue of commuting mileage reimbursement, making paying only for business miles a breeze.

The software lets you see your employees' locations and routes during their shifts, from when they clock in, to when they clock out. If your employees travel between various working sites to finish their tasks, they can keep accurate track of the business miles they make with a single click in the app.

commuting mileage reimbursement

After an employee hits the clock-in button, Timeero will ask them to confirm their location. 

commuting mileage calculation with Timeero

The software will only record miles while the employees are on the clock. You will see the exact spot your employee first logged in, with a timestamp, their entire route, and where they clocked out of their shift.  

This way, you will be able to gain control over mileage and expenses. You can ensure no private miles are being reimbursed and the company is no longer paying for commute costs and scenic routes.

Still, keep in mind that reimbursement can sometimes cover the expenses for different types of transportation, like ride-sharing services, trains, or buses. 

If this is the case, the IRS may deduct taxes based on the actual expenses of an employee rather than the amount they would spend on gas.

To be able to deduct taxes from the IRS, companies would need proper and accurate records.

Commuting Miles Vs. Business Miles

We can use an easy example to distinguish between business and commute miles clearly, and further clarify the communing mileage reimbursement issue.

Let's say Mellanie, who works in your company, lives three miles away from your main office. She drives to and from your office every day. On Tuesdays, she meets a client at their premises, five miles away from the office.

On a regular day, Mellanie drives four miles to her office and the same distance to return home, so her mileage from home is eight miles in total. 

On Tuesdays, she'll have an additional ten miles driven, so eighteen miles in total: four miles to the office, five miles to meet the client, five miles back to the office, and then four miles back home.

Following the IRS mileage rules, Mellanie's drive to the office and back home is considered personal commuting mileage. If you would want to reimburse Mellanie for her eight miles long commute each day, you can offer it as an extra benefit. Still, you won’t be able to deduct taxes for these expenses.

 

However, as Mellanie has to leave her primary business location to complete her work-related tasks, those ten miles she drives per a Tuesday’s meeting qualify as business miles. When reimbursed, costs for these miles are tax-deductible. 

Using Timeero, you can assign a specific job to an employee and enter their workplace location. 

The app will not only track the employees' miles but can also suggest the shortest route they can take to their destination, allowing your company even more savings.

For even more safeguards regarding tracking commuting mileage, you can use Timeero’s automatic clock-in and out feature. This means you can set the software to punch your employees in and out once they've entered or left the location. 

How Can I Manage Commuting Mileage Reimbursement? 

The most efficient way to tackle  commuting mileage reimbursement  issues is by making commuting disallowance a part of your general mileage reimbursement policy. 

There are two crucial steps towards achieving this goal - establishing the policy and choosing a reliable mileage tracking method to support it in practice.

Step 1. Establish the Mileage Reimbursement Policy

Your mileage reimbursement policy must be clear and well-structured to be able to answer all the employees' questions regarding the compensation process. 

For more details on how to create it, check out our article on drafting your mileage reimbursement policy, or download the free template we’ve prepared for you to tailor to your company’s needs.

Regarding commuting mileage reimbursement, the policy must make it clear that commuting is considered a personal trip. It also needs to specify that, as such, commute miles between residence and primary work location do not qualify for compensation. 

Your mileage reimbursement policy must also clarify the not-so-clear-cut cases. For example, suppose an employee temporarily works in a location different from their primary place of work. In that case, you can explain that the company will reimburse them for the extra miles. Or, if an employee has more than one usual work location, you can explain that your company will cover the mileage traveled between them in the same workday.

Step 2. Choose a Reliable Mileage Tracking Solution

The decision regarding the mileage tracking method is crucial for the efficiency of your mileage reimbursement policy. Whether your employees will track mileage manually or automatically can make all the difference in reimbursing your employees fairly, cutting your company’s costs, and saving your company from potential legal troubles and penalties.

To learn more about the pros and cons of each method, read our Complete Mileage Tracker Guide.

But choosing a mileage tracking software with GPS capabilities can give you the control you need over the miles your company is reimbursing, including the commuting mileage reimbursement. Timeero lets employees track their miles easily and is immune to fraud and human mistakes.

To ensure your employees clock in and out all their work hours and keep track of their business miles, Timeero offers quite a few safeguards. Besides punching the employees in automatically, the software can send notifications once they’ve entered or left the geofenced area so that they can take the desired action.

Furthermore, employees can set reminders to log the hours according to their schedule.

And, if someone forgets to clock out and the app keeps logging the private miles, you can easily recalculate the business mileage

You can set Timeero up to automate the entire mileage reimbursement process - from keeping track of the business miles to calculating the expenses you need to reimburse and the payroll.

Should I Provide Commuting Mileage Reimbursement?

Commuting mileage reimbursement is not a common business practice. Besides not being required by the law, enacting such a scheme could be very expensive for your company. 

On the other hand, although not mandated by federal law, reimbursing your employees for business mileage is considered a good business practice. 

In most states, companies offer mileage reimbursement as a benefit that helps them hire and keep their employees. However, most companies offering this benefit to their employees have a Commute Disallowance Policy and don’t cover personal trips. Those that do offer a commute benefit to their staff usually don’t cover the entire sum but a smaller portion.

But, state laws in the three states differ. If you run a company in California, Massachusetts, or Illinois, you must reimburse your employees for the costs of using their private vehicles for business purposes. If you omit to do so, you are breaking the law and can face severe consequences. The law doesn’t apply to commuting mileage reimbursement.

However, mileage reimbursement is federally mandated when failing to reimburse employees' costs would decrease their net wages below minimum wage. An employer could face lawsuits and financial penalties in such cases.

If you, however, choose to offer your employees a commuting mileage reimbursement benefit, keep in mind to tax it properly.

How to Calculate a Commuting Disallowance?

You can deduct commute from the total mileage of the day by subtracting the miles of your employees’ commute from the gross daily mileage. What you have left is net mileage, which you can reimburse using the IRS-defined rate.  

For example, an employee drives 34 miles in a day, which is their gross mileage. Their commute, both ways, is 12 miles. When you subtract 12 miles (commute) from 34 miles (gross mileage), what you have left is 22 miles (net mileage) to reimburse.

In general, you can calculate commute disallowance using the following formula:

Commuting disallowance = Daily commute miles X travel days. 

How Can Timeero Help?

As Timeero provides accurate and relevant data and enables easy access to the employees' miles, the entire reimbursement process becomes transparent, helping you avoid any potential disputes. Besides, in the case of the IRS audit, with such a solution, you can rest assured all your records are clean and valid.

Download Timeero and gain control over your miles.

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AUTHOR
Andjelka Prvulovic

Andjelka is a sociologist turned digital marketer. She specializes in creating content for SaaS and software companies. When she’s not researching the most effective employee management techniques, Andjelka loves cooking, reading, and fighting for human rights.

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