i. Why Your Mileage Reimbursement Policy Matters
According to research by IDC, by 2020, 75% of the entire workforce will consist of mobile
workers. What does this mean for you as an HR Leader? It means that you need policies that
treat your employees as fairly and accurately as possible and allows them the flexibility and
resources to be efficient while driving for work.
From your perspective as an HR Leader, it's imperative to choose a mileage reimbursement
policy that fits the unique needs of your business and your mobile workforce. You have to
consider strict labor laws that require you to reimburse your mobile employees as fairly and
accurately as possible. The last thing you want to deal with is a costly class-action lawsuit that
could cost your business millions. You also need to consider the different options for mileage
reimbursement policies because some can cost your bottom line in tax waste. We'll discuss
these risks in further detail in the next section.
ii. The Drawbacks of Implementing the Wrong Mileage
Reimbursement Policy
At first glance, a flat car allowance policy where your employees are reimbursed the same flat
amount each month seems like a viable option for mileage reimbursement. It's simple to
administer and there's not much administrative burden to be concerned about. It might also be
an attractive recruiting and retention strategy — if employees have a higher wage, they might
feel more valued, right? Well, not exactly. A flat car allowance has more drawbacks than it does
benefits. When reimbursement is paid as part of compensation, it's also taxed the same way.
Unlike a true reimbursement based on the actual costs of driving for business, a flat car
allowance policy is subject to FICA taxes for your business and income taxes for your
employees. This policy also incentivizes unproductive employee behavior. For example, an
employee may visit fewer clients or make fewer business stops each month knowing that they'll
still receive the same flat amount in their paycheck no matter what — ultimately viewing their
reimbursement as if it were compensation.
A cents-per-mile reimbursement policy reimburses your employees based on how much they
drive, but it doesn't account for the costs of driving specific to their location. For example, let's
say you have two employees, Jack and John, that drive the same amount of business miles each
Section IV
Successfully Implementing a New Policy
Motus.com 6
The HR Leader's Guide to Implementing New Policy
