Visas and Work Permits — 4 min
If you're looking for a way to ease the financial burden on your remote workers, consider covering their travel costs. One way to do this is providing mileage reimbursement for your employees. This way, you only pay an amount for every mile your employee travels for official purposes.
In order to reduce spending while you comply with labor laws, you must first understand how reimbursement works. Read on to learn what mileage reimbursement is, the mileage reimbursement rate, and how much to reimburse for mileage.
Mileage reimbursement is the amount a business owner may pay their employee to cover travel costs for business purposes. Employees may receive compensation each time they use their vehicle for company business. Since you manage a remote team, the expenses should be manageable.
A major requirement for reimbursement is that the employee must own or lease the vehicle. The Internal Revenue Service (IRS) sets the rates in the United States.
To avoid any confusion on how to reimburse for mileage, here are examples of valid claims that an employer may reimburse:
Depending on their role, employees may have to hold meetings on behalf of your organization. Meetings may include dinners, conferences, fundraisers, or private golf competitions. Regardless of the meeting outcome, employees can request reimbursement for the miles they drove. Often, companies may ask employees to notify management or the accounting department of such trips beforehand. However, employees can receive reimbursement even if they don't have time to notify a superior.
Often, employees in executive positions work remotely, and travel for business purposes; it is part of the job. A company may also schedule training for its remote team. Team members can request mileage reimbursement when they take a trip to the airport before a flight. This also applies to trips to bus or train stations before traveling.
Although remote workers typically provide their work tools, employers often assist with purchasing compulsory high-end materials. If management specifies a vendor for a purchase to improve employee performance, the company may reimburse for mileage. Going elsewhere to purchase the product may result in a forfeit of the reimbursement.
In a large corporation, employees occasionally interact with other franchises. When this happens, they may need to show up at other locations for meetings or official matters. Employees can receive mileage reimbursements whenever they move from franchise to franchise.
The question of reimbursements for remote workers especially gained attention during the COVID-19 pandemic. Regarding mileage reimbursements for a remote worker, the Fair Labor Standards Act makes no special consideration that is different from in-office workers. There are no federal rules stating that businesses must reimburse employees for trips to and from work.
However, employees must receive reimbursements for mileage if the cost of driving to and from work drops their earnings below minimum wage. If the cost of transportation to work would reduce their overtime earnings, employees can also get mileage reimbursement.
Since no federal law mandates employers to reimburse mileage, individual states can make adjustments by forming state laws to benefit remote workers within each state. Employers must reimburse employees for these expenses in states like California and Illinois. So checking the state laws where your business operates is advisable.
Reimbursing mileage implies paying for your employee's travel costs. While it may seem like an additional cost, you stand to benefit in various ways, including financially.
Employers must remit this payment if they pre-stated it in the employment agreement. This way, you remain compliant with the labor code. The employment agreement also justifies your tax deduction claims. By complying, you can avoid lawsuits or fines that can damage your company's image.
Reimbursing mileage for your employees' trips makes you eligible for tax deductions. By reimbursing travel mileage, you can reduce tax costs and gain in taxes saved.
As an employer, you want your staff to give their best for the company's success. Employee satisfaction is key to high levels of commitment. Options like mileage reimbursement can increase employee satisfaction and motivate your employees to be at their best daily.
As an employer, you can cover transportation costs by reimbursing mileage or providing official vehicles. Reimbursing mileage helps you drastically reduce capital costs.
To illustrate, when the employee uses their personal vehicle, you pay less than a dollar per mile. However, you'll be buying multiple vehicles for your employees if you don't reimburse their mileage. Consider the cost of buying new company cars, assembling them, and insuring them. In addition, you pay for repairs and maintenance. You'll find that reimbursing mileage is the cheaper option.
Thanks to global hiring platforms like Remote, businesses find it easier to expand abroad and hire employers remotely. This is why you compete with many other businesses for top talent. Knowing how stiff the competition for talent is, you want to keep your best employees.
Reimbursing mileage can help you retain top talent. When employees realize that their benefits package includes reimbursement for their official travels, it encourages them to continue working for you.
Reimbursing mileage is not mandatory, so you don't have to commit to it. However, you want to avoid overspending or overstretching company funds when you reimburse. If you're willing to reimburse mileage for your staff, here's how to do it right:
Reimbursing employees' spending can be tricky due to its multiple steps. It is advisable to establish a plan to go through this process without difficulties. Make an accountable plan that lets you accurately calculate mileage, disburse payments, and balance the books without hassle. Ensure your plan is based on labor laws, especially the Fair Labor Standards Act code.
The list of expenses available for reimbursement is endless, and the average employee would want their employer to reimburse nearly all of it. To properly guide your spending, prepare a list of expenses you reimburse. In terms of mileage, clearly state the reasonable expenses and conditions for reimbursement.
The list may include toll fees, parking tickets, and gas purchases. You may also add maintenance and insurance costs to the expenses you reimburse. With a list in place, management and staff are clear about their expectations.
Employees eligible for mileage reimbursements have to provide an expense report. Create a structure that helps manage expense reporting. This system should simplify the reporting process, detailing the steps for reporting, and providing a sample of the report sheet. Ensure the report sheet contains crucial information such as:
Date of the trip
Purpose of the trip
Proof of every payment, such as tickets and receipts
There is more than one method of compensating employees for mileage on business-related errands. You can compensate employees by giving them an allowance or reimbursing each expense. If you are open to both, you may ask the employee for their preferred compensation method.
Here's more explanation of these two options:
You can compensate employees by giving them an allowance for their work-related travel. This is usually a fixed amount that the employee usually gets in cash. Make sure you consider the fixed and variable costs of using and managing a vehicle first. Fixed costs include registration fees, insurance, and taxes. Variable costs are ones that change frequently like gas prices, parking fees, and oil change costs.
You may compensate employees by offering payment to cover the costs of an employee's trips when on official assignments. You may choose to make this payment monthly. This method works better for employers who rarely send workers on official duties.
After deciding how to compensate employees, the next step is calculating mileage reimbursement. You want to accurately and fairly calculate the reimbursements without loopholes.
If you don't know how to reimburse employees for mileage, there's a standard method for this that the Internal Revenue Service (IRS) endorses. It is a flat rate per each mile the employee drives which is 58.5 cents per mile. Thus, for each mile the employee drives for official assignments, they currently get $0.585. For example, an employee who drives 100 miles per month gets a $58.50 reimbursement.
After calculating how much you would be paying, make arrangements to pay as soon as possible. If you prefer issuing an allowance, make the payment at the start of each month. This helps the employee make better plans on how to manage the allowance. You may write them a check or transfer the funds to their account, depending on what you find convenient. Alternatively, you could wait until month-end to receive the employee's receipts and ticket before compensating them.
After completing the compensation process, keep proper records of these activities for your tax return. Ensure you record each payment and have receipts or tickets to corroborate the spending. By keeping proper records, you justify your spending and can request tax deductions for reimbursements.
Your business category determines how you get tax deductions for mileage. For sole proprietorships and limited liability companies, use the IRS Form 1040 and record your mileage under Schedule C. Meanwhile, partnerships use Form 1065, while corporations may use Form 1120 or 1120S.
If you solely use the vehicle for business purposes, you can deduct 100% of your car expenses. However, you can only claim tax deductions on business trips alone if you also use the vehicle for personal use.
The IRS makes a clear statement about claiming disbursements in the case of employees. Employees can no longer claim mileage as part of their tax deductions if the employer doesn't reimburse them. If the employer pays an allowance for mileage that exceeds the IRS rate, the employee must file the excess fund as taxable income.
Make mileage reimbursement one of your many benefits with the support of a global hiring partner like Remote. At Remote, we understand how offering benefits can help attract some of the best professionals in your industry. We offer professional support to ensure you avoid fraudulent claims and exorbitant rates that could make you overpay. Remote simplifies your reimbursement processes to ensure compliance with labor and tax laws while offering excellent bookkeeping.
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