How To Create An Effective Mileage Reimbursement Policy (+Free Policy Template)
When you provide mileage reimbursements to your employees, it becomes highly crucial that you also have a clear and concise mileage reimbursement policy. You may ask what a mileage reimbursement policy does when you already are reimbursing your employees for mileage. Well, an easy-to-understand policy helps simplify the process for you and your employees. It gets rid of any confusion that the employees may have while filing their expenses and eventually creates a smooth mileage reimbursement system.
In this blog, we discuss the importance of a mileage reimbursement policy and the elements to be covered to make it an effective one.
Why Do We Need A Mileage Reimbursement Policy?
The US Travel Association says that 48% of all business trips involve a personal vehicle. Since there is the usage of a personal vehicle by an employee, the amount spent on gas must be reimbursed. This reimbursement should come under an accountable reimbursement plan to not be taxed.
Hence, there is the need for a proper policy that defines all the information about mileage reimbursements including how the mileage reimbursements are calculated, how to file reimbursements, how much of the amount is reimbursable, what are the standard rates, etc. Having a mileage reimbursement policy benefits both the employees and the employer while keeping the reimbursement process going smoothly.
Sections To Be Included For An Effective Mileage Reimbursement Policy
Mileage reimbursement policies must include the factors that need the most clarification. The policy itself needs to be flexible and every business should create a policy that best suits them. The policy must be updated as and when required.
- Introduction to mileage reimbursement rate & how it is calculated: Define what the mileage reimbursement rate is and how the calculation is made.
The mileage reimbursement rate is generally defined as the cost per mile set by businesses for the purpose of reimbursing employees when they use their personal vehicles for business purposes. The employer can either go by the standard mileage rates set by the IRS or accept the mileage receipts submitted by the employee.
Here’s an example for when the standard rates are applied: When the federal mileage rate is 56 cents per mile, multiply this rate by the number of miles the employee drove for a period of time. If the employee drove 100 miles in July, the reimbursement would be $56, and so on.
Also, predetermine the distance by allowing only the most efficient routes to be taken by the employees. If you prefer not to use the standard mileage rates, you have the option of reimbursing mileage in the form of Flat Car Allowance or Fixed & Variable Rate Allowance (FAVR) as per the IRS guidelines.
- Provide examples: The mileage reimbursement policy is best explained with a few examples of what is acceptable for mileage reimbursement claims and what isn’t. Here is a couple of them you can refer to.
Example 1: An employee travels from the main office to a client meeting at the Miami Convention Center then stops for lunch, goes to another meeting at the Miami Chamber of Commerce. Finally, returning to the main office. The entire mileage for this trip can be reimbursed.
Example 2: An employee leaves from home to attend an all-day meeting. The employee returns home without any deviations after the meeting. The total distance traveled was 65 miles. The employee’s normal commute is 10 miles. Here, 55 miles can be reimbursed.
Example 3: On the way to a meeting, an employee takes deviation to run personal errands. After the meeting, the employee drives to the office and then home. The mileage reimbursement will be allowed for the drive to the meeting minus the deviation, and the mileage from the meeting to the office only.
- How to submit mileage reimbursement claims: The IRS has four main requirements for mileage reimbursement claims to be included in the accountable reimbursement plan. It is advisable that the employees keep a log of these details as it will help them in filing expense claims. These are:
- Time and date of each journey
- Total number of miles covered according to odometer readings
- The destination
- Reason for the journey/Business purpose
Once these points are covered, it gets simpler and easier for the employees to file their expense reimbursement claims.
Build Employee Morale With The Right T&E Partner
Providing mileage reimbursements can be good for your brand image and can be a great way to improve employee morale. What takes it up a notch is when you make reimbursements simpler and less time-consuming with travel & expense management software like ITILITE. To find out how you can get near 100% compliance on your policies, book a demo with our experts today!
Your Free & Customizable Mileage Reimbursement Policy Template
A precise and concise mileage reimbursement policy helps employees stick to it and improves compliance. With this free template for mileage reimbursement policy, save time while creating a customized policy for your organization.