If you run a business, consider a mileage reimbursement policy. It can be a smart way to manage money while maintaining good employee relationships and attracting talent. The IRS sets a standard mileage rate each year. It is based on the cost of gas but also covers wear and tear.

What is Mileage Reimbursement?

Mileage reimbursement is the amount of money an employer pays employees to cover expenses when using their vehicle for business purposes. This may include fuel costs, maintenance and vehicle depreciation.

While no federal law requires an employer to reimburse employees for mileage, several states have laws that mandate businesses to pay employees for business-related driving. In addition, if you fail to reimburse your employees for their travel expenses to the point that it causes their net pay to drop below the minimum wage, your company could face legal liability. There are many different types of mileage reimbursement programs. Some use a cents-per-mile system, while others offer a fixed and variable rate (FAVR). Both types of mileage programs require your employees to track their business miles. This includes the number of miles driven, their beginning and ending odometer readings, and the reason for the trip. Some companies even require a smartphone app that tracks all of the details. This is an excellent way for frequently traveling employees to keep detailed records of their work-related trips and increase their chances of receiving the correct mileage reimbursement rate.

How to Calculate Mileage Reimbursement?

If your employees regularly drive their cars for business purposes, you may be able to save them money by reimbursing them for these trips. Mileage reimbursement is a smart way to manage your employees’ expenses while complying with applicable employment laws and taxation rules. To calculate mileage reimbursement, you must know how many miles your drivers have driven in a given period. You can use this information to determine how many miles are reimbursable and what percentage they represent. The IRS sets a standard yearly mileage rate, typically around $0.625 per mile. Most employers and independent contractors use this amount to reimburse their employees for driving to work. However, it is a national average and not necessarily an accurate depiction of local fuel costs. For more accurate depictions of driving costs in your area, consider using a fixed and variable rate (FAVR) program and working with an expert to develop a reimbursement rate that best meets the needs of your workforce. This method accounts for fixed costs such as insurance, license and registration fees, taxes and depreciation, and variable costs like gas, oil and maintenance. Your policy for reimbursing employees should include a clear set of guidelines. It should state the reimbursement rate, the payment method and to whom employees should send expense reports. It should also clearly state the times when mileage is not reimbursed.

What Are Reimbursable Miles?

Whether or not you’re using your vehicle for business purposes, knowing what miles are reimbursable is an essential part of the process. Miles incurred for non-work-related reasons, such as trips to the supermarket or a coffee shop, don’t count. Keeping a mileage log is a meaningful way to document your reimbursable mileage. You can use a handwritten journal or an automated solution that automates the process.

To get started, write down the number on your odometer before you start driving and then again once you’ve arrived at your destination. Then subtract the first number from the second to get your reimbursable mileage.

There are several different types of mileage reimbursable by law in the U.S. These include:

Local Miles – those incurred to travel to and from your primary work location. This includes a round-trip commute that’s more than 50 miles from your home to your office.

Travel Miles – those incurred to travel outside the 50-mile radius of your home for business purposes. This includes a trip to attend a workshop or meet with a customer.

Companies often use a standard rate per mile when reimbursing employees for mileage expenses. However, this is only an estimate and can fluctuate year-to-year depending on fuel prices and other factors.

How to Get Mileage Reimbursement?

If you drive your vehicle for business purposes, you may be entitled to mileage reimbursement. These reimbursements are tax-deductible, so it’s a smart way to manage your money while complying with employment laws and avoiding costly penalties from the IRS. There are several ways to calculate your mileage reimbursement. One method is the actual expense method, which reimburses employees for all costs related to their work-related driving – including gas, insurance rates and maintenance. However, this method is prone to disputes and requires extensive recordkeeping. Another method is a fixed and variable rate (FAVR) calculation, which splits fixed costs from variable costs, like fuel. This allows employees to choose a lower mileage rate than the standard IRS reimbursement rate. The IRS sets a standard mileage rate each year, which fluctuates based on a combination of vehicle and fuel cost data. Many employers use this mileage rate as a guideline, although it’s only useful for tax deductions. As a result, if you use your car for work, it’s important to log every mile you travel in a mileage log to ensure that your company or organization reimburses you properly. This can be done with an odometer reading or using an app that tracks miles.