When employees use their personal vehicles for business purposes, companies need a clear system to reimburse them for the associated costs. This is where a mileage reimbursement policy comes in. It outlines the rules and regulations for compensating employees traveling for work activities using their own cars.
In this article, we will cover everything you need to know about mileage reimbursement policies. We’ll outline the required elements of a policy and discuss how to create them, as well as provide you with a policy sample that your company can use as a guideline.
You can also download our free mileage reimbursement policy template, which can be customized to fit your business needs.
A mileage reimbursement policy is a formal document outlining the company's guidelines for paying back employees who use their personal vehicles for business travel. It clarifies which travel expenses are covered, how mileage is calculated, and the process for submitting reimbursement claims.
Having a well-defined mileage reimbursement policy offers several benefits to both employers and employees.
Fosters Transparency
A clear and well-defined mileage reimbursement policy fosters transparency and minimizes confusion among employees. When expectations are clearly communicated, employees understand what constitutes legitimate business travel and the associated reimbursement procedures.
A company reimbursement policy reduces the risk of misunderstandings and disputes regarding travel expenses. A transparent policy also promotes a sense of fairness among employees, as everyone is reimbursed at the same rate. In the long run, this allows companies to retain more workers since employees are satisfied.
Ensures Compliance
One of the most valuable perks a company can provide to its workers is compensating them for expenses incurred when they use their cars for work-related activities. That being said, there are some states that require mileage reimbursement like Massachusetts, California, and Illinois.
In locations where the net income of employees would fall below the minimum wage if they are not paid back for expenses, the federal government mandates mileage compensation. In these circumstances, a business may be vulnerable to legal action and monetary fines if expenses are not reimbursed.
Establishing a mileage reimbursement policy is a smart idea, even if it isn't required by law in your state and you aren't under any legal obligations.
Boosts Efficiency
Employers can save time and resources by having a well-structured mileage reimbursement policy. With a streamlined reimbursement process in place, and clear documentation requirements, your workers can submit claims quickly.
Managers experience reduced administrative load, as they no longer have to spend a lot of time reviewing each claim to process them.
Reduced Financial Burden
Receiving compensation for using personal vehicles during business trips is one of the most direct advantages given to employees. Employers who offer mileage reimbursement to their staff members recognize that they incur expenses related to fuel, maintenance, depreciation, and other costs when they use their cars for work.
Issuing mileage reimbursements prevents employees from unfairly bearing the costs of business travel, and reduces their amount of financial burden.
Clear Expectations
When there is a clear policy in place, employees learn what is and is not reimbursable. A reimbursement policy prevents disputes from occurring during the claims process. A well-written policy directs workers to only submit claims for actual business travel expenditures.
Employees who are aware of what is covered by the policy can track their mileage with confidence and submit accurate claims without worrying about being denied compensation or having their payment delayed.
Before creating your policy, it's important to familiarize yourself with the relevant tax and regulatory requirements regarding mileage reimbursement. To ensure compliance and avoid legal trouble, consult applicable legal resources. This may include state laws, IRS employee mileage reimbursement rules, and industry standards.
States like California, have strict regulations regarding mileage reimbursement, so understanding guidelines is an important part of generating your company’s policy.
Note: If you’re in California, visit our article on California mileage reimbursement to learn how to navigate the reimbursement process. We also recommend consulting legal or tax experts for guidance on particular issues or specifics pertaining to your company.
Now that you have acquired the necessary legal information, you can start building your policy's framework. To begin, you will need to indicate the policy's purpose in detail. For instance, you can state that it aims to offer fair compensation to employees that use their personal cars for authorized work travel.
Specify which employee groups qualify for mileage reimbursement. Will the policy apply to all employees or only specific departments that have frequent travel needs?
You should also outline the types of travel expenses covered under the policy and what counts as a reimbursable business trip. Mileage is often the most reimbursed employee expense. However, depending on your company's practices, reimbursed expenses could include tolls, parking fees related to business travel, or even airport parking if employees are required to use their personal vehicles for business flights.
The best way to avoid ambiguity is to use examples of reimbursable travel expenses in your policy, such as:
Make sure to clearly list expenses not covered by the policy such as running personal errands while using their vehicle. Additionally, make sure you state that an employee’s daily commute from their home to their regular workplace is not considered business travel, and therefore is not reimbursable.
The next step in policy creation is to decide how to reimburse employees for their mileage. To do this correctly, you need to establish the reimbursement rate your company will use.
Most businesses use the Standard Mileage Rate to pay back their workers. The Internal Revenue Service (IRS) determines this rate annually, which includes coverage for both the variable and fixed costs associated with driving a car. Our article “What does mileage reimbursement cover?” answers this question in detail to help you understand the topic better.
Variable expenses include maintenance, repairs, and fuel costs.
Fixed expenses include insurance, registration, and depreciation.
**Parking and toll charges are not included in this rate
As of 2024, the IRS mileage reimbursement rate is 67 cents per mile driven. To easily calculate the reimbursement amount owed to your employees based on the IRS standard mileage rate, you can use our free IRS mileage reimbursement calculator. If the reimbursement does not surpass the IRS standard rate and the appropriate documentation is provided, the amount reimbursed is tax-free.
Although using the IRS rate to reimburse employees is easy to implement, it is not mandatory. Companies can opt to calculate mileage reimbursement in other ways, including:
Employees need a reliable way to track the miles driven for legitimate business purposes. You should specify acceptable methods for tracking in your policy.
Relying on odometer readings and mileage logs may seem like the easiest choice, but in reality, it proves to be the most difficult. Relying on manual tracking methods requires employees to maintain a detailed record with information beyond odometer readings. This could include the trip purpose, start and end locations, timestamps, and a brief description of the business activity.
In addition to requiring a great deal of time and effort from your staff, manual mileage reporting is rarely a precise and dependable method of tracking due to human error.
To reduce the risk of mistakes, consider allowing employees to use apps or GPS technology to automate mileage recording. The best mileage tracking apps can simplify the tracking process for employees and improve accuracy, especially for frequent travelers.
To help you determine which option is best for your business, check out our Odometer vs GPS comparison guide.
No matter the tracking process you decide to use in your business, be sure to state which methods are acceptable for employees to use in your mileage reimbursement policy.
Employees need to know how to make travel reimbursement requests. First and foremost, you should specify a timeframe within which employees must submit their claims. This will ensure that they are processed in a timely manner and prevent backlog issues.
Your mileage reimbursement policy should also include the documentation required for each claim. This typically includes a completed mileage log or app-generated report detailing the business trips and the total mileage driven. Depending on your policy, you can also require employees to include receipts for tolls or parking fees related to business travel.
Employees can submit their claims through a dedicated online portal, email them to a designated department, or submit a physical form to a supervisor. The most efficient way for employees to submit claims is to use a mileage-tracking app equipped with this feature.
Submitted employee claims must be examined for approval or rejection. Determine who has the authority in your company to do this. The entity in charge of claims approval could be a supervisor, the finance department, or a designated employee responsible for expense management.
You should also outline the criteria for claim review. This could involve verifying the claimed mileage against company travel records or checking adherence to the policy's guidelines for business travel purposes.
After you have completed your policy, distribute it and communicate its contents to employees in a clear way. There are several ways you can do this:
We’ve covered how to create a policy for your business, but you may be curious to see an example of a company mileage reimbursement policy.
We’ve included a sample below that covers all essential aspects of a proper mileage reimbursement policy.
Using GPS-tracking software like Timeero simplifies mileage tracking. With Timeero, you will be better equipped to hold employees accountable, maintain IRS compliance, and issue mileage reimbursement.
We’ve highlighted several of Timeero’s key features that play a large part in successful mileage reimbursement.
Timeero allows employees to clock in from their mobile devices, automatically triggering mileage tracking for business trips. This eliminates the need for manual odometer readings and reduces the risk of errors when tracking mileage for work.
It also significantly reduces the administrative burden on the finance department or personnel responsible for managing mileage reimbursement. The offline GPS mileage tracker continues logging miles even when the internet connection is lost, guaranteeing accurate records.
Segmented tracking is a hassle-free approach to verifying your employees' work travel. Your employees only need to clock in once at the beginning of their workday and out at the end of their shift. Timeero will then record employee journeys using GPS information.
Thanks to this feature, employees no longer have to manually record mileage at each site. The app provides an overview of business travel details, such as the amount of time spent at specific sites and tasks completed, as well as the length, location, and distance of each trip. It drastically cuts down on the time spent manually logging mileage and lowers the possibility of omitting details.
Timeero automatically generates timesheets for each employee. With this function, you gain access to information such as the total number of miles driven and locations visited. All of these details can be compiled in a mileage report, which can be easily generated whenever you need it.
You will also be able to view reimbursement costs based on your company's chosen reimbursement rate. The ability to automatically calculate reimbursement totals saves your employees time and effort compared to manually calculating business mileage and compiling reports.
Timeero offers a unique and practical function called "Commuter Mileage" in addition to its full range of mileage tracking capabilities. You can learn more about this tool in our article on commuting mileage reimbursement.
When you assign job destinations to your employees in Timeero, commutes are taken into account. The software begins automatically recording business miles when an employee surpasses the commuting threshold, ensuring that the mileage recorded is only connected to work-related trips.
Timeero offers a "suggested mileage" feature that recommends the most efficient driving route for a business trip. It compares the actual route taken against the shortest one. This helps employees avoid unnecessary detours and potentially reduces fuel costs associated with reimbursement.
Timeero’s route replay feature allows you to visually track the exact route taken by an employee during a business trip. Imagine a map replaying the employee's journey, pinpointing the origin, destination, and any intermediate stops. That’s exactly what this feature does.
Route Replay enables you to identify issues encountered on the job, such as prolonged travel times, excessive idling, or even reckless driving.
Timeero also integrates with popular payroll and accounting software, including:
Timeero’s integration capabilities allows for seamless transfer of mileage data and reimbursement calculations, ensuring accurate expense reporting and compliance with IRS regulations.
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Crafting a comprehensive mileage reimbursement policy is an essential step for any company with employees who use personal vehicles for business travel. By following the steps outlined in this guide, you can develop a policy that is fair, efficient, and compliant with IRS regulations. Our sample mileage reimbursement policy and template will also be very useful.
Timeero’s automated mileage tracking can significantly streamline your company’s reimbursement process for both employees and employers. Ditch spreadsheets and pen-and-paper for a more reliable system that eliminates errors and ensures data accuracy. Timeero saves you time and money while preventing frustration.
Sign up for Timeero’s free trial today to see how our software can make a difference in your company’s reimbursement process.
A mileage reimbursement policy should outline what expenses are covered, how employees should track mileage, and how to submit claims. It must also specify the timeframes and documentation employees must submit to collect their compensation.
