How to create an effective mileage reimbursement program
The benefits you offer your employees are critical in being able to hire quality staff members. When you plan on asking employees to use their personal vehicles for business related activities, then one of the benefits you need to offer is employee mileage reimbursement. One of the reasons for offering reimbursement is to avoid the possibility that your employees may later present you with a bill for the use of their personal vehicles for business activities. The other reason that you want to create a comprehensive reimbursement program is so that you can offer it as a perk to entice premier employment candidates to join your company. As you begin developing your mileage reimbursement policy, there are several things that you need to keep in mind. A comprehensive reimbursement plan is going to enhance the motivation for your staff and allow you to still reap financial benefits for your company.
All mileage reimbursement plans are based on the maximum allowable deduction as outlined by the IRS. Any savvy employee will know exactly where to look to see what the maximum allowable IRS deduction is for business miles. This maximum per mile amount is the highest tax benefit you will get for offering employees mileage reimbursement and it is the guideline you need to use when establishing your maximum reimbursement figure. The IRS puts out its mileage allowance number in cents per mile. You can choose to offer less than the IRS maximum, but you should never offer more. You will get no financial relief if you offer more than the stated maximum. Most of your competitors will be offering the maximum as allowed by the IRS to their employees. Since the purpose of a mileage reimbursement plan is to offer a competitive compensation package, you should also consider offering the maximum amount as well.
If you do not have a comprehensive set of policies on mileage reimbursement, then you are opening the policy up to abuse. You will start to get employees submitting mileage forms for reimbursement that you were not expecting and it can start to become expensive. When you develop your reimbursement program, one of the key elements will be the need for employees to get all mileage reimbursement activities approved by company management up front. Some companies go so far as to have employees submit forms to be signed by management before mileage reimbursement can be approved. Another important element to keep in mind with a reimbursement program is the kind of vehicle your employee is using. You may want to offer a lower per mile rate to employees who have less efficient vehicles and offer the highest per mile rate to employees with fuel efficient cars. This will save you money and it may also inspire your employees to get better vehicles.
An essential part of an mileage reimbursement program is the form that your employees fill out. This is important because it forms the basis of the tax deduction you will claim for business mileage expenses. Another reason that this kind of form is important is because it is a way to monitor employee activity. If you notice that employees are claiming 50 miles for a location that is only 10 miles away, then this is something you need to address with your employees. You can also match up the management approval forms to the actual reimbursement forms to make sure that they match. A reimbursement form should be signed by the employee and by any applicable managers. The employees signature is critical because it binds the employee to the information on the form. If you suspect that an employee is using your mileage program to defraud the company, then having his signature on the mileage forms could wind up being extremely important evidence. The form is also critical for your accounting department. A mileage reimbursement form needs to have all of the pertinent accounting information on it, including routing information to make sure that everyone who needs to see it does get to see it, in order for the form to be effective.
One of the biggest mistakes some employers make when it comes to reimbursing mileage is they put the reimbursement into the employees paycheck. For tax purposes, and for the sake of your accounting group, the payment should be made with a separate check. In most cases, companies prefer to keep mileage separate from commissions and other expenses as well. Mileage reimbursement is the one expense that has its own designation on an IRS tax filing. If you pay your employees with mixed checks, then you will not be generating accurate tax information. Commissions, bonuses and salaries have federal and state income taxes applied to them and all three are taxed at different rates. Expenses are not taxed. That is one of the main reasons why you should never mix mileage in with the paycheck. Expenses are also categorized on IRS tax filings. This is why your mileage needs to be its own separate check, away from the other expenses.
A mileage reimbursement program can be beneficial for your company in several regards. Some business owners see a mileage program only as an expense. But if you plan on asking your employees to use their personal vehicles for business purposes, then offering mileage is an essential part of doing business. When you develop your mileage reimbursement program, the more detail you put in your polices the better. It is important that the exact details of the program be outlined to your employees, and it is also critical that you keep all of your mileage reimbursement paperwork separate from all of your other accounting documents. Once you have a solid program in place, then you will be able to offer a program that will allow your company to offer a competitive compensation package to the top talent in your industry.