Having a proper employee mileage reimbursement program in place for your employees can save time and money as well as improve compliance with IRS.
Approving improper mileage expenses is an audit risk for both your company and your employees. Yet we see businesses of all sizes make the same mistakes time and time again with mileage reimbursement.
So you have decided to have a mileage reimbursement program. How do you avoid the most common pitfalls to reap most benefits while staying compliant? Here, we’ll discuss the most common mistakes we see, and how to avoid them.
1. Document the Employee Mileage Reimbursement Process
Less than half of companies with mobile employees have implemented a written policy for mileage reimbursement.
Some companies pay out reimbursements without a mileage log while others may not have clear requirements for what is and aren’t acceptable business mileage.
If this sounds like a mess, it’s because it is. And it’s hard for employees to meet your expectations when you haven’t set out clear guidelines for them to follow.
Employees need to know when they can make a deduction and how they document the purpose of the deduction using the trip card notes fields providing a proper audit log.
New employees need to know how they install the mileage tracking app and why power saving features might disable logging.
Managers need to know when not to approve mileage reports and the accountant needs to keep standardized records to safeguards your employees and your small business from audits.
Remember: It’s tough to have a well-defined policy and uniform process without the appropriate tools.
Company Mileage tracking software can help your employees make the most of their reimbursement while maintaining detailed, accurate, easily-accessible records that can be shared with just a few touches of a phone screen. Done successfully, you will see a productivity boost and often lower expense claims.
2. Counting On Manual Mileage and Expense Reporting
Still, over half of businesses that do have a policy in place still rely on manual expense reporting. This means wasting employee time, especially when it comes to mileage reimbursement. It also leads to unlimited audit exposure and penalty risk for the company.
This is the reason, many companies are willing to reimburse without any standard documentation. This puts your business at risk for making inaccurate reimbursements, thereby wasting money.
If your business relies on handwritten mileage logs or spreadsheets, you are accepting records that could be doctored in the employee’s favor, you’re also burdening your workers with the task of manually logging every single business drive.
Instead, improve employee productivity and give them the an automated tools to automate mileage log documentation, so your staff can do what they do best.
3. Settling On A System That Suit Your Needs
Make sure to choose a mileage tracker that actually suits your small business’ needs. Since mileage can be such a big problem, it’s easy to get sold on bloated software that don’t do what you need them to. Most companies already have a process for expense management, which is why MileCatcher focus on doing one thing and do it well.
Keeping things simple makes education and adoption success much more likely. Dedicated solutions increase the chance of deployment success.
4. Counting Business Expenses Twice
You can use one of two methods to calculate business-related auto expenses: You can use the standard mileage rate, or you can deduct based on your actual expenses. You may not use both!
The standard mileage rate is definitely the easier of the two to track and is the more popular of the two methods. However, if you choose to use this method, you may not deduct for things like depreciation, automotive repairs or maintenance costs.
The reason for this is that those major expenses are already factored into the IRS standard mileage rate. It’s important not to reimburse for things like car repairs and fuel costs if your employee is deducting based on the standard mileage rate when they file their taxes.
5. Counting Commuter Mileage as Company Reimbursable Mileage
This is important to make clear to your employees when you discuss the mileage reimbursement program: mileage from home to the office, and from the home to the first client does not count as business expense, use unless the employee has a declared home office.
While this may come as a surprise to some people, according to IRS Publication 463, commutes are considered personal expenses, not business expenses.
This also applies to employees who work during their commute, so that train pass or self-driving car won’t help employees gain any more business miles for deduction than other forms of transportation.
Even if it’s by mistake, reimbursing for personal mileage can cause a major headache in the event of an audit.
6. Keeping it simple
Employee resistance is the biggest issues changing a business process. Picking a solution that is intuitive and does not change other processes e.g. travel expenses and having an early adopter team documenting the new process are two valuable factors for success.
Our experience tells us that the key factor is if your employees experience the time savings of an automatic mileage logging app, then the adoption be successful. Therefore skip the paper logbook alternative and try MileCatcher!
Contact support@milecatcher.com if you want more tips or have any questions.
