How to Establish a Vehicle Reimbursement Program

A vehicle reimbursement program is designed to compensate employees for the business use of their personal vehicles. This is in contrast to the alternative of having a fleet of company-owned vehicles ready for your employees to use for work-related activities. There are many costs associated with purchasing and maintaining a fleet of vehicles, such as the up-front sales price, insurance, maintenance, gas and more.

Because of this, many companies choose to move forward with a vehicle reimbursement program that compensates their employees for business use of their vehicles. However, there are many ways to issue a car allowance to your employees, and finding the right program to use is the first step.

Consider the Actual Costs to Your Employees

Before you choose to use a car mileage allowance or another type of car allowance policy, it is important to consider the actual cost your employees incur as a result of using their vehicles for business purposes. After all, while you do not want to pay a fortune overpaying employees for the use of their vehicles, you also do not want to set up a payment structure that is unfair to them. This can lead to discontentment and even massive turnover in some cases, which can be a managerial nightmare.

Employees incur expenses related to gas and extra wear and tear on their vehicles. The extra mileage means their vehicles will depreciate in value more quickly. In addition, some insurance companies may charge them a higher rate if they use their vehicle for business purposes.

Explore the Various Options Available

Clearly, you want to set up a vehicle reimbursement program that covers all of these expenses your employees incur. There are some services that provide vehicle reimbursement programs. These programs may use complicated software analytics based on the type of vehicle being driven, the fuel economy of the vehicle, the depreciation rate of the vehicle, average insurance costs of the vehicle and more to more accurately create a customized reimbursement rate.

This may be preferred to using the government-established car mileage allowance. The government system takes into account averages across the nation, but vehicle reimbursement programs offer more customized results that can eliminate overpaying or underpaying employees for the use of their car.

It can take a lot of time and effort to thoroughly review all of the options and to understand the pros and cons of each system or method. However, your time and effort spent in this effort will ensure your employees are properly compensated in a fair manner while also preventing the costly possibility of overpaying them. Take time to begin exploring the options for vehicle reimbursement programs today as a first step.