Mileage reimbursement is an important form of compensation for employees who use their personal vehicles for work-related travel. Understanding what most businesses pay for mileage can help companies ensure they’re offering competitive and fair reimbursement rates.

This article will explore current trends in mileage reimbursement and factors that influence these rates. We’ll also discuss how businesses can determine the most appropriate reimbursement strategy for their specific needs.

How Much To Reimburse Mileage: Using the IRS Standard Mileage Rate

The IRS standard mileage rate often serves as a benchmark for many businesses when setting their reimbursement rates. For 2024, the IRS has set the standard business mileage rate at 67 cents per mile.

Related: How Is the Standard IRS Mileage Rate Determined?

This rate is calculated based on an annual study of fixed and variable costs of operating a vehicle. It takes into account factors such as depreciation, insurance, repairs, tires, and fuel costs.

Do Companies Have To Use the IRS Standard Mileage Rate?

While many businesses use the IRS rate as a guideline, it’s not mandatory. Companies have the flexibility to set their own rates based on their specific circumstances and needs.

Businesses can set a rate that’s higher or lower than the IRS standard mileage rate if they so choose. The most important factor in terms of setting your own rate vs. using the IRS standard mileage rate comes down to a few things.

Related: Is Mileage Reimbursement Considered Taxable Income?

If you plan on using a rate higher than the IRS standard mileage rate, then you should understand that your drivers will be taxed for the excess payment. They will not be taxed for the reimbursement you provide them at the standard mileage rate.

If you plan on using a rate lower than the IRS standard mileage rate, then you need to make sure your employees’ final take-home pay doesn’t fall below the minimum wage in your jurisdiction. If it does, you will need to make up for that pay.

Average Reimbursement Rates in Businesses

While the IRS rate serves as a guideline, actual reimbursement rates can vary significantly across businesses. In the end, most businesses take the simplest approach – using the IRS standard mileage rate.

This would mean most businesses in 2024 reimburse their employees at $0.67 per mile. If you plan on using a different mileage reimbursement method such as mileage allowance or FAVR, your payments may vary significantly.

Factors Influencing Reimbursement Rates

Company size and industry play significant roles in determining mileage reimbursement rates. Larger corporations may have more resources to offer higher rates, while smaller businesses might opt for lower rates to manage costs.

Geographic location is another crucial factor. Companies operating in areas with higher fuel costs or more expensive vehicle maintenance may offer higher reimbursement rates to offset these expenses.

Related: Mileage Reimbursement Requirements By State

Employee driving patterns also influence rates. Businesses with employees who drive frequently may choose lower per-mile rates, while those with occasional drivers might opt for rates closer to or above the IRS standard.

Economic conditions, such as fluctuating fuel prices, can prompt companies to adjust their reimbursement rates periodically. Some businesses implement flexible rates that change with market conditions to ensure fair compensation.

How To Determine How Much To Pay for Mileage Reimbursement

Many businesses simply adopt the IRS standard mileage rate for simplicity and compliance. This approach ensures that reimbursements are tax-deductible for the company and tax-free for employees up to the IRS limit.

Some companies opt for custom rates based on their specific circumstances. These rates might be calculated using internal data on actual vehicle expenses or industry benchmarks.

The Fixed and Variable Rate (FAVR) program is a more complex but potentially fairer method. It combines a fixed payment to cover costs like insurance and depreciation with a variable rate for fuel and maintenance.

Benefits and Drawbacks of Different Rates

Reimbursing at rates higher than the IRS standard can attract and retain employees who drive frequently. However, any amount above the IRS rate is considered taxable income for the employee.

Related: Mileage Reimbursement Explained | How To Set Up a Mileage Reimbursement Policy for Your Business

Lower rates can help businesses manage costs, but they risk undercompensating employees and potentially violating labor laws in some states. This approach may also lead to decreased employee satisfaction.

Using the exact IRS rate simplifies accounting and tax reporting. It also ensures that the entire reimbursement is tax-free for employees and tax-deductible for the company.

Custom rates or FAVR programs can more accurately reflect true costs, but they require more administrative effort. These methods may be particularly beneficial for businesses with employees in diverse geographic areas.

Best Practices for Setting Mileage Reimbursement

Regular review of reimbursement rates is crucial to ensure they remain fair and competitive. Many businesses reassess their rates annually or when significant changes occur in fuel prices or other vehicle-related costs.

Gathering employee feedback can provide valuable insights into the adequacy of current reimbursement rates. This feedback can help identify if rates are too low, potentially leading to employee dissatisfaction or out-of-pocket expenses.

Consider conducting periodic analyses of actual vehicle costs incurred by employees. This data can help refine your reimbursement strategy and ensure it aligns with real-world expenses.

Stay informed about reimbursement rates offered by competitors in your industry. This knowledge can help you maintain competitive rates to attract and retain talent.

How TripLog Can Help with Mileage Reimbursement

TripLog offers automatic mileage tracking, ensuring accurate records of business travel. This precision helps both employers and employees by eliminating manual logging errors and disputes over mileage claims.

Related: Car Allowance vs. Mileage Reimbursement Explained | Which Method Is Right for Your Business?

With TripLog, businesses can easily set and adjust custom reimbursement rates, and TripLog’s reporting features simplify the reimbursement process by generating detailed mileage reports. These reports can be easily integrated with payroll systems, streamlining the entire reimbursement workflow.

By providing real-time data on mileage and expenses, TripLog helps businesses make informed decisions about their reimbursement rates and policies. This data-driven approach can lead to fairer compensation and better cost management.

How Much To Reimburse for Mileage: Conclusion

Determining the right mileage reimbursement rate is a balancing act for most businesses. While the IRS standard rate provides a helpful benchmark, many companies find that customizing their approach yields better results.

The key is to strike a balance between fair compensation for employees and manageable costs for the company. This often requires a nuanced understanding of factors like geographic variations, industry standards, and individual driving patterns.

Related: Mileage Reimbursement for Employees Explained

Using tools like TripLog can significantly simplify the process of tracking, calculating, and distributing mileage reimbursements. By automating these tasks, businesses can ensure accuracy, compliance, and fairness in their reimbursement programs.

TripLog lets you set custom mileage rates, exempt employee commutes, and much, much more!

To learn how TripLog can help your team manage your mileage and expense reimbursements, you can create an account for your team, or you can schedule a complimentary in-depth demo today!