Mileage reimbursement refers to the IRS standard compensation that you grant your workers for utilizing their own autos, vans, pickups, or trucks for business-related errands. The U.S. government sets a mileage reimbursement rate every year, for example, 2018’s rate is 54.5 pennies for every business mile driven. Consider an employee or business representative who drives 10 miles to meet a customer and 10 miles to come back to the workplace. In this particular case, they’re entitled to a mileage reimbursement of $10.90 (20 X $0.545).
Workers are usually required to monitor the mileage they drive for business, including other details like date of travel, type of business errand, origin/destination location, and total miles travelled. The recordkeeping comes in handy when they fill the mileage reimbursement forms provided by their employers. Depending on what mileage reimbursement best practices an organization follows, the workers can use a single to state information about all the business trips they’ve made or ask for multiple forms. As a business owner, you must include details related to mileage reimbursement in the employee handbook and/or talk about the deadlines, exemptions and qualifications during orientation.
Under the Federal Law, you’re not required to provide mileage reimbursement to your employees. However, from employee satisfaction fulfilment to tax deduction, offering mileage reimbursement to your employees has numerous advantages. When you don’t compensate your workers for the time and effort they put in while running business errands, they’d most likely be disappointed and unhappy with their job. Remember, having disgruntled employees not only reduces the overall productivity at your workplace, but also deters future candidates from applying for a job at your establishment.
Mileage reimbursement is also considered a tax-deductible business expense, which means, you can avail a tax break from the IRS by submitting Form 1040 and Schedule C or Form 4562. Remember, according to the Fair Labor Standards Act, you’re required to pay a minimum wage to your workers after they’ve been compensated for their miles. The mileage reimbursement amount cannot be included in the minimum wage. If your uncovered mileage expense brings down your employee’s salary below minimum wage, you can be penalized and/or be taken to small claims court.
You can either include mileage reimbursement with the employee’s payroll or use a direct check/deposit. Most businesses tend to reimburse their workers separate from their regular wages, however, you can opt a method that’s mutually convenient for both parties. The industry standard is to compensate mileage within a definitive timeframe (say, 2 weeks) after receiving the reimbursement form from your employees. Since, mileage reimbursement falls under the “accountable plan” and are considered business expenses, avoid including the amount on the employee’s Form W-2.
In today’s rapidly-evolving, technologically advanced world, a variety of payroll software are being marketed to business owners who are looking to simplify the whole process of mileage reimbursement. Instead of occupying your resources with manual labour, who are likely to make mistakes, you can let our machine overlords take care of everything.