Mileage Policy For Employees: How To Adjust Company Mileage Policies When Gas Prices Skyrocket

How to Adjust Your Business Mileage Policies for Changing Variables

You must establish clear guidelines on how you will pay back employees who use their personal automobiles for work-related purposes. The IRS publishes recommendations for mileage reimbursement rates; however, these rates are not usually adjusted for factors such as fuel prices or traffic congestion.

You should modify your mileage policy to account for the true cost of driving in the locations where your workers live and work if you want to demonstrate to them how much you value their time.

Let's examine several strategies to assist you in modifying your business mileage regulations when circumstances influence the use of personal vehicles by your staff.

Any employees of your company who utilize a personal vehicle for business travel are entitled to mileage reimbursement.

Your business has to have a policy in place about how it will compensate employees who use their own automobiles, regardless of the number of employees you have on staff.

It is helpful to start your mileage reimbursement rate calculation using the Internal Revenue Service's guidelines:

• 58.5 cents (increasing 2.5 cents from 2021) per mile driven for business.
• 18 cents per mile traveled for medical needs or transportation (an increase of 2 cents from 2021).
• Employees driving for philanthropic causes will receive 14 cents per mile.

However, the IRS does not take into consideration factors such as gridlock or the present spike in petrol prices. These factors ought to be included in your mileage policy if you want to demonstrate to your staff that you respect their time.

Sometimes, your default strategy won't cut it, whether you're dealing with supply-and-demand spikes or seasonal challenges.

When factors impact your workers' use of their own vehicles for work, these pointers will assist you in modifying your corporate mileage regulations.

1. First, familiarize yourself with the laws

It is beneficial to be aware of both state and federal laws. Regulations change, so even if you think you have everything covered, you still need to stay informed. If not, you risk facing high fines or being entangled in legal proceedings.

It's not legally necessary for you to repay your employees for using their cars if you pay them more than the minimum wage.

Your state's laws, however, might indicate otherwise. Your company must, at the very least, abide by state regulations.

Federal rules do apply occasionally. For instance, you can face penalties or even legal action if your wages were lowered to less than the minimum wage due to travel!

Reimbursement policies should cover depreciation, wear and tear, gasoline expenses, and maintenance.

Exceptions to the Fair Labor Standards Act (FLSA)

Although each company is different, the Fair Labor Standards Act (FLSA) was created to guarantee that workers received equitable treatment regardless of their circumstances.

A fixed minimum wage was created under the FLSA. Standards for child labor were established, reliable records were mandated, and overtime compensation became available to employees.

However, there's another, less frequently used clause that covers travel pay laws.

Some situations necessitate travel pay, like as overtime or mileage costs.

Generally speaking, an employee is paid when they travel for work-related errands or assignments. However, the time spent traveling from home to work is not the responsibility of the employer.

Additionally, they are exempt from paying for passenger travel expenses when en way to an overnight work stay.

The one exception to this is that employers are required to make up for any travel time incurred while an employee is working.

Other noteworthy exclusions to be mindful of comprise:

• Day Trips: The whole amount of travel time is remunerated if you dispatch an employee to work in a different city and they return the same day.
• Errands: If an employee uses their own car for work-related travel while on the clock, they ought to be reimbursed for the mileage. Even though the FLSA serves as the foundation for most states, you should be aware that your state may have slightly different laws. Naturally, we advise always relying on the compensation regulations that are more lenient toward your staff; expenses other than mileage, like auto maintenance and repairs, might have a negative impact on their finances.
• Overnights: If an employee uses their own car for an overnight business travel, you will be responsible for paying their mileage. Reimbursable miles are limited to business miles. Therefore, you wouldn't have to pay back that miles, for instance, if they decided to use that journey to perform personal errands.

Tax Laws

Business owners have to deal with state and federal tax laws regulating mileage reimbursement.

Your employee will have two choices for claiming mileage deductions on their income tax returns:

1. Use the standard mileage rate
2. Itemize all vehicle-related business expenses (gas, tolls, depreciation, etc.)

They must adhere to your company's policies unless they are self-employed or independent contractors.

You should be very explicit about how you handle deductions in your mileage policy. Will you provide a mileage reimbursement, such as a fee per mile? Or are you going to gather their gas receipts and include the fuel reimbursement in their pay?

Mileage deductions from taxes can be tricky. Keep track of all the expenses incurred by your business, including gas receipts, mileage logs, car maintenance records, and receipts for parking and tolls.

When you both submit your taxes, your deductions should equal what your employee says they were paid.

2. Take into Account the Driving Zone

You might not be aware of changes in fuel prices in other regions if your drivers are distant, which is common with corporate fleets. However, your employees who live in or travel through geographic fuel hotspots are impacted by these price changes.

Several factors affect gas prices, one of which is the octane level—regular, midgrade, or premium. Diesel, which is usually more expensive than premium gasoline, may be used in larger cars.

When You Cannot Afford the Gas Prices

Regular travelers might favor premium or midgrade fuel. This kind of gas is less likely to cause problems for the car's engine because it is more resistant to burning and detonation.

Oil refiners have the option to increase the price of high-octane fuel by 42 to 67 cents per gallon.

Although it is not your company's duty to keep an eye on gas prices, it is in your best interest to ensure that your staff members are content.

Let's say that your business pays the average 56 cents per mile set by the IRS, but gas costs go up. An individual may be losing money to work for you by the time they fill up their tank.

Keep an eye on things like traffic in your city that have an impact on fuel prices. Your staff will use a lot of gasoline sitting in unwarranted traffic bottlenecks if they are forced to idle. Because of supply and demand, gas prices are typically higher in these places as well.

You can think about changing your employee mileage reimbursement policy to compensate your team in these areas so that you are being fair to them. An inadequate rate of reimbursement may cause your employees to fall below that limit, putting you at risk of legal action.

3. Apply the Cost Analysis Monitoring

It's critical in company to stay on top of what's profitable and what's overly expensive. When it comes to mileage, keeping track of each driver's use of their own car might help you modify your charges appropriately.

For example, if a driver uses a lot of gas and you're paying them using fuel receipts, it might be less expensive to provide them a business car.

Although they are simpler to manage, flat-rate reimbursements might not be the best option for you or your staff.

However, you may need to change your strategy if keeping track of miles is a bother that prevents you from turning a profit.

Using Tax-Deductible Tracking Apps Measuring the mileage of pre-planned journeys is made simple using record tracking applications. Look for an app that will allow you to program in the most popular routes, and it will monitor and identify them.

MileIQ and other free applications track a driver's mileage and provide weekly data to the office. However, unless you pay to the expensive editions, this mileage tracker only allows you to schedule up to 40 trips per month.

Some paid apps, like TripLog, do more than just monitor distance traveled. This program is intended for companies that need to track the real-time mileage traveled by several personnel.

Workers can take pictures of their receipts, and your QuickBooks account will automatically receive the expense.

Numerous applications are available for tracking mileage. Once you've found the one that works best for you, let your staff members know about it and include it in the mileage policy of your business.

4. Define Your Mileage Policy Based on Data

Your company policy is ultimately up to you, provided that you adhere to state and federal minimum criteria, such as the IRS mileage rate. Changing your mileage policy can also occasionally be the most financially advantageous choice.

Fuel prices rise in tandem with the need for crude oil. You can make decisions based on this data.

What Effect Does the Price of Fuel Have on You?

These fuel prices may have an impact on you, depending on your company's mileage reimbursement policies. This is especially valid if you lease or own a fleet of cars.

You're missing out on a significant portion of your budget if you're not monitoring your fuel expenditure. For businesses that rent out cars, this might account for as much as 60% of your overall operating expenses.

The expense of your corporate automobile program will grow up regardless of how many or how few remote workers you have on staff. This is ensured by depreciation and rising fuel prices.

By monitoring the analytics, which include mileage costs, fuel prices, and employee return, you may reduce the costs.

Program Swapping: The Benefits and Drawbacks

There are additional possibilities if your present policy isn't functioning properly. Each of them has advantages and disadvantages.

The following are a few of the standard company policies for both single and fleet vehicles:

Flat Allowances

With this policy, every worker who drives their personal vehicle for business use gets the same rate. It is easier to track, but it’s not fair to workers who drive more or have higher fuel costs.

Pay-Per-Mile

While more equitable for workers, cents-per-mile laws are more difficult to uphold. For instance, it must remain less than 56 cents if you wish to avoid paying taxes on it. For accuracy, these policies will need to be tracked using an automated mileage tracking application.

FAVR

One of the most equitable and adaptable schemes is the Fixed and Variable Rate Allowance Program (FAVR).

Under this program, the reimbursement rate for each employee is modified according to their individual location, gasoline price, and mileage driven.

It's reasonable, but not as practical for businesses with a large driver pool. To continue being economical for both the business and the mobile worker, it needs to be continuously monitored and adjusted.

The secret is to remain adaptable and notify your staff of impending changes when you modify your policy to address issues like growing gas prices. Employees are more receptive to new regulations when they are aware that things may change.

Increasing your revenue is the aim of modifying your mileage policy, but you should only take steps to ensure that your staff members continue to feel appreciated. It makes sense to act in your employees' best interests when trying to increase revenue and lower attrition.

5. Use Alternative Solutions

Finding your staff alternate forms of transportation can occasionally be less expensive. When it comes to travel, we currently live in an upside-down world where flying can be less expensive than renting a car or driving a personal vehicle.

As a business, you may be able to get company discounts for airfare and travel expenses.

Do the Math for the Best Value

Consider the expenses of sending your employee on an overnight errand to another state in their car:

• Mileage and depreciation

• On-the-clock travel

• Tolls and parking expenses

• Hotel accommodations

• Food expenses

Your company can save money on many of these aspects if it has default travel planning partners.

You're wasting time looking for a clean, reasonably priced, and conveniently located hotel.

Once you locate one, you will need to repeatedly enter your billing information for every employee, as their schedules may not always coincide.

Using a specialized booking system allows you to pick from over 700,000 partner hotels using the default filters. You can then build up travel policies that allow your departments or teams to book rooms according to your specifications.

Planning employee travel will be made easier and you'll receive the greatest deals if you have comparable solutions for the other aspects of travel (such as lodging, meals, and transportation).

Additional Advice to Cut Your Travel Expenses

You will pay $456 per employee for a 400-mile round-trip drive at the mileage reimbursement rate of 57 cents per mile.

It's probably less expensive to fly your employees away. While you'll avoid paying for tolls and parking, you'll still need to pay for transport while working. Calculate the cost-effectiveness of buses, trains, and even carpooling with this pricing method.

Your company can save thousands of dollars a year, or more, by replacing long drives with other modes of transportation.

However, if your staff members are required to drive, think about providing them with a fuel-reserving credit card. Select a credit card that provides advantages such as reward points or cash back.

You'll accrue benefits quickly if your fleet of cars charges their gas bills to a single corporate credit card.

Conclusion

Businesses can improve their mileage rules by incorporating the lessons from this blog article to take into account the variables that impact employee vehicle usage in real time.

Comprehending the effects of factors such as gas costs and traffic congestion enables businesses to develop equitable and long-lasting compensation policies. In the end, companies that want to develop a valued and productive staff should give equal weight to cost-effectiveness and employee pleasure.