If you have employees driving their personal vehicles for company work, then reimbursing employees for mileage driven is something you may have thought about or are already doing.
Mileage reimbursement is common in industries such as home health, property management and other industries where employees are on the go or work on the field.
Are you required by law to reimburse mileage driven?
There is no law that requires employers to reimburse employees for mileage driven. The practice of reimbursing mileage has become so common and so it’s become an expectation. Most importantly, we think it’s the right thing to do and a clever way to retain employees.
For businesses, mileage reimbursements can be considered as deductible business expenses. For employees, mileage reimbursements are not taxable hence.
Even though employers are free to reimburse employees, there are a few things to keep an eye on:
* Reimbursements should only be made for deductible business expenses.
* Ensure employees turn in records as proof for expenses. An example of this could be an odometer reading log, which includes the employee’s purpose for traveling. You may also want to consider a company or team mileage tracker app for your employees.
* Employees should return any amount paid in excess back to employers.
Even though companies are not required to pay for mileage reimbursement, employees in the past have sued companies for not paying mileage costs, because of the Fair Labor Standards Act kickback rule. This law is especially important if employees are being paid close to or around minimum wage and operating their vehicle for work.
Essentially, the law points out that employers should consider calculating an employee’s earnings to include the value placed on the employee’s personal vehicle(or equipment or supplies in some scenarios) in order to avoid employees making less than minimum wage. Consider the following examples:
John makes $10/hour delivering fast food. He works 40 hours a week and earns $400 for the week. However John drove 300 miles for his deliveries using his personal vehicle. Let’s say the IRS mileage rate is 54 cents per mile, then John incurred a cost of $162 (300 miles x $.54 per mile).
The value of transportation to the employer, 300, miles puts John below the minimum wage.
This is because ($400 – $162) / 40 hours = $5.95/hour. Since the minimum wage in John’s state is $7.25/hour, this would be a minimum wage violation.
What is the average mileage reimbursement rate for employees?
Since mileage reimbursement is not required by law, there is really no set way to reimburse employees for mileage driven. The easiest and most popular way to reimburse employees is by using the IRS business standard mileage rate.
Employees may opt to calculate the actual costs of using and driving their vehicles for business purposes. For employers, it is highly recommended that you create a mileage reimbursement policy for your team.
What is the 2021 IRS mileage rate?
The new business IRS mileage rate is 56 cents per mile starting on January 1st 2021.
* 56 cents per mile driven for business use
* 16 cents per mile driven for medical, or moving purposes for qualified active duty members of the Armed Forces, and
* 14 cents per mile driven in service of charitable organizations.
You can learn more about the IRS mileage rates here.
How to track business mileage and employee mileage reimbursement.
If you are using the IRS mileage rates, tracking employee reimbursements shouldn’t be too difficult. The tedious part mostly has to do with employees properly tracking and turning in their mileage driven.
Employers also need to ensure employees are taking the shortest route (not the most scenic route) to their destination. Otherwise, employees will be getting overpaid for mileage driven. This is an all too common form of mileage theft. Luckily, there is technology that can help prevent and ensure you are paying for the shortest path.
To make mileage tracking and reimbursement easy, we highly recommend you use mileage tracking software with a mobile such as Timeero, which uses GPS tracking to ensure you are paying for the shortest path driven. With this software, each employee gets access to a mobile app to track their mileage, meaning that mileage is readily available, and you can see the GPS breadcrumb driven for each trip.
How to avoid over reimbursing mileage
Mileage theft is an all too common problem we see with many businesses. Businesses end up bearing the full costs of employees over-representation mileage driven. Here’s an example of what can happen:
John has to drive from point A to point B. John chooses to take the longer and scenic route to point B knowing fully well he will be reimbursed for his travel cost. Or John may decide to add a stop to his trip. Who knows how long the stop may be off his route….but John goes ahead and submits his odometer readings to his employer, Dan.
Dan has no clue which route John took and he may only have to rely on John’s odometer readings. If you find yourself in a similar situation, which is all too common, you are most likely overpaying for mileage.
To fix this, you can use Google or Bing Maps to find the shortest route and pay based on that. A few extra padding of mileage here and there really starts to add up. In this example, Dan would be paying for an extra 4 miles, which could be a little over $2. However when you start to add those up for all trips, it really starts to get expensive. The more employees you have the more expensive it gets as well.
A better way?
Even though this method works, it really starts to turn into a very time consuming task. This is why you should utilize an app like Timeero to track distance traveled and also to find the shortest route for reimbursement.
With an app like Timeero, you can easily capture employee mileage and avoid over reimbursing for mileage traveled. You also get a full path of where everyone has been, while on company time or doing business travel.
Employee mileage reimbursement policy?
To manage mileage and similar expenses, businesses should set out a clear reimbursement policy. A clear reimbursement policy can help reduce mileage and reimbursement fraud. Employers are required to only deduct deductible business expenses.
A mileage reimbursement policy should make it clear on what can be deducted and some items that should not.
Need help with mileage reimbursement and mileage tracking?
Reach out to us if you are looking for a better way to track your company mileage and reimbursements. You can also start a 14-day free trial of our platform.