According to the American Automobile Association, the national average price of gasoline is currently $2.66. According to Kelly Bluebook, the average cost of a new truck in America is $40,000, and of a new car, $36,000. Tires are said to last for 50,000 miles, and most trucks recommend an oil and filter change every 5,000 miles.
These costs are important for employers who need their employees to travel for business. The cost of this travel is important to the person behind the wheel, for if it is not covered by his employer, it diminishes his wages.
Construction travel reimbursement typically takes the form of providing a vehicle, a set monthly car allowance, a cents-per-mile reimbursement, a gasoline card, or some variation of these. The challenging part is that our industry has been all over the map with vehicle benefits. There is a lot of confusion on what is allowed, what should be paid and whether what is paid is considered taxable income or not.
The current IRS mileage rate is 58 cents per mile. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. Taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
When negotiating a job offer, it is important to remember that employer and employee are approaching the issue of travel reimbursements from two different perspectives, even though they both typically regard it as income.
The candidate for employment is thinking of the anticipated travel for the job, how the company would adjust if their starting reimbursement does not cover the full costs, how this would be contained within his household budget, and how all of this compares to his previous job. The candidate is also thinking of the fact that he is paying for and maintaining his vehicle in order to get to work, which makes it, to him, an out-of-pocket cost.
Meanwhile, the hiring manager is typically thinking of his set policy (if he has one), or what the company typically provides or pays in reimbursements.
Oftentimes, the employer will view reimbursements as a means by which to entice new employees to join. However, this can sometimes cause difficulties with keeping employees after they are hired, because in time they will be focused on increases to base pay. Meanwhile, the employer will be focused on the overall cost of the employee as compared to their allotted labor burden.
Each of these options has its unique advantages and disadvantages for workers and employers. A company-provided vehicle requires the employer to invest in maintenance, storage, and insurance. If the employee is not allowed to utilize a company car for personal use, they will then need to use their own vehicle more than they would like. On the other hand, if they are permitted to utilize it for personal use, what are the limitations of this?
If the vehicle has a logo on it, many communities under HOA restrictions will not permit it to be parked in the person’s yard. Providing company vehicles to some employees and not to others (or providing newer vehicles to some and not to others) can create an illusion of favoritism and cause adverse employee reactions despite good intentions on the part of the employer.
If an employee is based at a single location (such as in the corporate office), he will be responsible for his own transportation costs to and from work, with the caveat that employees will be compensated for any required business travels.
When the amount of a car allowance does not vary depending differences in vehicle age, condition, and fuel efficiency, some employees will profit, some will lose money, and some will break-even.
According to the Internal Revenue Service, workers who receive company cars are permitted to deduct the cost of maintenance and operation, including fuel, provided these vehicle costs are expended for business purposes, and the employer reports the value of the company car on the W-2 form as part of the employee’s taxable income. Car allowances also receive special tax consideration, and are deductible from an employer’s taxable income if the employer reports them as such. Employers are responsible for informing employees who receive car allowances how they were reported, so that the employees can file their tax returns properly.
Employers should take the time to explain to employees the verbiage in their reimbursement policies, as well as how the program is reported to the IRS. If this isn’t done, misunderstandings can arise, particularly if the employee’s previous employer handled this issue differently.
If employers clarify when employees receive the allowance, and what is required of them for reporting it, this will make it easier for them to understand and accept the program.
The same holds true regarding each option offered, such as gas cards and vehicle maintenance. This clarification should include a discussion of what is offered, how and when it is received, and what is reported on. They should also be provided with training resources and relevant contacts to whom they can reach out if they have questions.
We will be happy to help you evaluate your current program from the perspective of hiring and maintaining employees. We recommend that you discuss tax and risk management options with your CPA and insurance providers.
Auto-expense programs outlined and managed correctly can be advantageous to both employers and employees. The ability to explain the reasons why your program works the way it does provides more credibility to your leadership and processes. It also protects you from added costs and liabilities.
