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

Dimitri Gedevanishvili

Dimitri Gedevanishvili

Marketing Manager
company mileage reimbursement plan setup

If you have mobile employees, setting up a company mileage reimbursement policy is a must. With that said, not every company has a policy in place, and if they do, their policies are often inefficient.

Outdated pen-and-paper mileage tracking methods cost companies thousands of dollars and countless labor hours every year. It doesn’t have to be that way. Today, we’re going to discuss why mileage reimbursement policies are important, and how you can easily set one up.

What Does Mileage Reimbursement Cover?

“Mileage” refers to any expenses incurred when an employee uses their personal vehicle for work. Think of tasks like meeting with clients and going out for office supplies.

If they’re using their personal vehicle to conduct business for your company, they’re subject to getting reimbursed. Some potential expenses that can be covered by mileage reimbursement may include:

  • Fuel
  • Oil changes
  • Insurance costs
  • General maintenance
  • Car depreciation

Keep in mind that certain things are not covered by mileage reimbursements. For example, employee commutes are typically not reimbursed.

How Much Should You Reimburse For Your Employee’s Mileage?

Determining what rate to reimburse your team can seem tricky, but it doesn’t have to be. It all comes down to what’s fair.

In the United States, the IRS tries to make it easier by offering a mileage rate that is based on “an annual study of the fixed and variable costs of operating an automobile” (IRS.gov). The standard mileage rate for 2022 is 58.5 cents for business mileage.

Related: IRS Mileage Rate Explained | How Is The Standard Mileage Rate Determined?

In most states, this rate is optional, however. If you as an employer can prove that the expenses your employees incur are less than the recommended IRS rate, you are able to pay them the rate that you think is fair.

If you choose to do this, tread carefully, as this method can leave you liable if you’re under-reimbursing. Your employee’s net pay can fall below the minimum wage.

Other Mileage Reimbursement Methods

With that said, what’s fair for one state may not be fair in another. A reimbursement rate used by a tech company in San Francisco may not make as much sense for a small business in rural Oklahoma.

If, for example, you feel as though the IRS rate won’t be fair for your region, your business can implement a fixed and variable rate (FAVR) program. If your rate is higher than the one set by the IRS, your employee will have to pay taxes on the additional income.

Are Companies Required to Reimburse Mileage?

In most states, mileage reimbursement is not a requirement. The IRS does not have any federal regulations that force companies to offer reimbursement programs.

With that said, most companies choose to use the standard IRS mileage reimbursement rate. In addition, some states have their own laws and regulations regarding mileage reimbursement.

Consult your local jurisdiction’s laws to ensure you’re following the correct guidelines. For readers and company owners not living in the United States, be sure to check your government’s requirements on expense reimbursements as some of this information may not apply.

driving car for work needs mileage reimbursement

Why Your Company Should Develop a Mileage Reimbursement Policy

There are two major reasons why you should develop a mileage reimbursement policy. First, it helps in attracting top talent by ensuring the company will make good on any company-related expenses that are incurred by the employee. Second, it allows the company to reduce its tax exposure by identifying valid business expenses that it can write off.

Employee Mileage Reimbursement: The Data

Without a modern mileage tracker app, employees generally use paper mileage logs. This requires the driver to pull out their mileage logbook, grab a pen, and manually enter the necessary information.

Drivers spend around 2 minutes per mileage entry using pen-and-paper logs. An automatic mileage tracker like TripLog cuts out that time almost entirely.

If drivers make multiple trips throughout the day, these minutes add up, with a typical driver spending an average of 58 hours a year filling out manual mileage logs.

Related: IRS Mileage Commuting Rule: What Businesses Need To Know

In addition, TripLog found that, within a three-year period, 28% of all manual mileage claims are overreported, costing companies an average of over $1,800 per driver. TripLog’s app cross-references manual reports with Google Maps, ensuring accurate mileage reporting.

How To Implement a Mileage Reimbursement Policy

To take advantage of the benefits of implementing a mileage reimbursement policy, a company must ensure certain things are in place to meet all IRS requirements. An accountable plan is one such necessity.

If you choose to use the standard mileage rate, you will need to set up an accountable plan. An accountable plan outlines reimbursement and expense allowances for employees. This will ensure that your reimbursement is tax-free.

When setting up an accountable plan, companies must ensure they meet three specific criteria:

  1. Your employee’s expenses must be business-related.
  2. The employee must provide a timely and detailed expense report.
  3. The employee must return any payments that were more than the reimbursement within a reasonable timeframe.

To Ensure Accurate Reimbursements, Employees Must Track Their Mileage.

As stated above, employees need to provide timely and detailed expense reports. These reports should differentiate business mileage from personal mileage.

The Problems With Manual Mileage Reimbursement Methods

For decades, companies have had their employees fill out manual mileage logs. This requires them to pull out a paper mileage log and a pen and manually jot down information like odometer readings.

Oftentimes, the employee will have to present a stack of receipts, forcing your company to invest more time in sorting and organizing expenses. In an internal study, TripLog found that drivers spend about 2 minutes per stop filling out mileage logs.

One TripLog client found that their drivers were spending eight hours per month just on manually entering their travel.

Approximately 19% of all expense reports have errors, and companies lose around 5% of their revenue to fraud. Manual expense reports leave companies significantly more prone to errors and fraud.

Related: Manual Expense Reports: The Hidden Costs

Automatic Mileage Tracker Apps Make Mileage Reimbursement A Breeze

By switching from pen-and-paper to an automatic mileage tracker app like TripLog, companies can save untold amounts of money and time. Drivers get a sleek, modern, and fast way to track their mileage and expenses, and business owners and admins get access to our comprehensive web dashboard.

mobile employee using car for work will need mileage reimbursement

TripLog automatically starts tracking your team’s trips the moment they start driving and stops when they stop. With one easy swipe, they can classify the trip as business or personal.

Then, right from the app, employees can submit their reports directly to your admin team for reimbursement. You can even deduct your team’s first and last trips (i.e., their commutes) from their mileage reports.

TripLog’s web dashboard holds all of your team’s mileage reimbursement information in one convenient place. With detailed analytics and reporting capabilities, you can see where your money is going, as well as approve or reject expense reports.

Mileage Reimbursement vs. Mileage Allowance

As we know, every business is different and one size may not fit all. It’s worth pointing out the major differences in reimbursing employees for their mileage & expenses vs. providing an allowance.

When companies provide an allowance, employees receive their funds beforehand and can use them for travel without having to wait. With that said, this method can result in fraud and unintentional inaccuracies.

Requiring employees to submit mileage expense reports can reduce the instances of fraud and inaccuracy, but it increases the paperwork. For many companies trying to reduce fraud and keep a tighter rein on their expenses, it can be a more attractive option.

Choosing mileage reimbursement has its disadvantages, but companies can leverage technology that automates the entire process.

How TripLog Can Help With Mileage Reimbursement

Effective mileage tracking and reimbursement solutions such as TripLog can cut the time and effort needed to put in place a mileage reimbursement policy. TripLog is by far the market’s best mileage reimbursement solution.

TripLog provides a smart mileage reimbursement solution not only to small and midsized companies but also to larger enterprise-scale organizations.

Related: Is Mileage Reimbursement Considered Taxable Income?

Our intuitive web dashboard allows administrators to manage approvals, supervisors, mileage, and more. The dashboard allows companies to easily set up their accountable plan and mileage reimbursement policy.

TripLog’s Mileage Reimbursement Features

TripLog’s easy-to-use app allows for many set-and-forget auto start options. In addition, TripLog’s web dashboard gives business owners and administrators access to insightful data, such as month-by-month mileage, fuel use, busiest hours, and more. 

Complete and total control via the comprehensive dashboard allows company administrators to tailor mileage reimbursement details whenever IRS requirements or company policies change.

TripLog provides companies with a competitive advantage by helping them to make mileage tracking a more efficient, manageable, and transparent process.

Download TripLog for free on iOS or Android, or schedule a complimentary web demo today.

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Mileage Reimbursement Savings Calculator

Using outdated manual mileage logs can cost businesses thousands of dollars per year in lost time and incorrect reimbursements. See how much TripLog can help you save!

Number of drivers

Average miles daily per person​

Number of trips daily

Cents-per-mile

Annual mileage reimbursement costs based on the numbers you provided.

Annual Mileage Reimbursement

50 mi/day x 100 drivers x $0.54 (5 days x 50 wks)

$675,000

This is the inline help tip! You can explain to your users what this section of your web app is about.

According to research, on average employees inflate the mileage by 25% when self reported.

Estimated Reimbursement Savings

25% x Annual Mileage Reimbursement

$168,750

People on average spend 2 minutes on manually recording trips.

Manual Entry Hours

2 mins x 10 trips/day x 100 drivers (5 days x 50 wks)

8,334 hr

Taking national average $25 hourly rate.

Estimated Labor Savings

Avg. $25/hr x Manual Entry Hours

$208,334

Your Company

could save

(Labor Savings + Reimbursement Savings) / Number of Drivers

$4,167

per driver