How confident are you about the structure and strength of your vehicle reimbursement program? Is it a hastily prepared and unstructured plan, or is it a professional policy that supports your culture of fairness in wages, benefits and expense management? Fair Labor Standards Act (FLSA) wage codes recognize how expense reimbursement affects wage compliance, and weak reimbursement plans have contributed to violations and daunting challenges.
A poorly designed reimbursement program can undermine your carefully crafted wage and salary policies, exposing you to a FLSA Minimum Wage challenge or violation. If your employees can argue that their reimbursement doesn’t adequately cover their costs for business driving, your carefully planned wage policy could quickly unravel.
Know the rules
Labor codes vary by state, but a growing number of states are embracing language similar to California Labor Code Section 2802. Simply stated, CA-2802 entitles employees to receive expense reimbursement for all work-related expenses, including mileage, supplies, equipment and more. It also states that no contracts or agreements can nullify or void this benefit.
In many states, employers have faced lawsuits in which drivers have claimed under-reimbursement for business use of their vehicle that, in-turn, creates a minimum wage violation. Often times these wage cases have resulted in millions of dollars in fines, payouts, and penalties.
Consider your options
The key to a professional, working reimbursement program is to identify the necessary expenditures and reasonable costs for an employer’s unique business needs. There are several options for reimbursing your employees who drive their own vehicles for work. A professional partner can help you evaluate your options and recommend one or more solutions. These include:
- Cents-per-mile (CPM) program – a program in which drivers are reimbursed a flat rate for each business mile driven and reported. Companies can choose the IRS Standard Deduction Rate or a different rate and collect detailed business use mileage logs. This policy seldom pays a reasonable reimbursement for necessary costs – almost always over- or under-reimbursing employees.
- Allowance program – a program offering a fixed monthly payment that is estimated to cover business expenses. This easy-to-administer plan is difficult to defend, as each driver has different business mileage and widely varying costs.
- Fixed and Variable Rate (FAVR) policy – a reimbursement program for companies that includes a fixed amount each month (factoring in insurance, depreciation, tax, license), and a rate per mile to cover reported fuel, maintenance and tire wear. Properly designed, this plan closely calculates the necessary expenditures and reasonable costs of business use for drivers in a wide variety of situations.
Keep in mind the importance of good record keeping. Business mileage expense is the only business expense without a “receipt”. Pairing a CPM program or a FAVR policy with our award-winning mileage capture app will help create credible mileage records for a fair, accurate and defensible™ vehicle reimbursement program.
Partner with a professional
Runzheimer is the industry leader and our experienced team can help you create a reimbursement plan that carefully complements your professional wage and salary policy. We take pride in offering programs that mitigate your risk. We are a data-rich company with the technology tools and experience to tailor your solution.
What can we do for you? Let’s talk and see how we can take your vehicle reimbursement program to the next level.
About the Author
Mike has 20+ years of experience consulting, implementing and supporting professional solutions for Business vehicle reimbursement plans, Mobile Applications, and employee relocations. His long tenure at Runzheimer has made him a trusted expert both externally and internally.More Content by Mike Bassi