Mileage reimbursement rates keep changing, which makes it tough for companies to figure out if a per-mile reimbursement plan or a stipend works best. Because you are not required by law to pay mileage reimbursement or an allowance, knowing the advantages and disadvantages helps you choose the best method to cover employee costs associated with using personal vehicles for business purposes.
Defining Stipends and Reimbursements
A mileage allowance, or stipend, is a specific amount you set ahead of time to reimburse your employee for use of his vehicle for business, no matter how many miles he drives. Your employee must pay taxes on mileage allowances, which are considered part of a compensation package. This is also true for you, as the owner, if you pay yourself a salary or draw as an employee and also give yourself a mileage stipend. Mileage reimbursements, on the other hand, are based on the exact number of miles driven. The 2013 standard Internal Revenue Service mileage reimbursement rate is 56.6 cents per mile for vehicles used for business purposes.
Reviewing the Advantages
Offering an employee a monthly stipend helps you create and stick to a budget without worrying that mileage costs might be more than you planned for. However, taking mileage reimbursement when paying yourself for use of your car for business means you also can choose to deduct other vehicle-related expenses, including, insurance, garage rent, oil, repairs and tires, according to Inuit. Both mileage reimbursement and stipends offer one similar advantage in that you are not required to pay anything to employees to cover business use of their vehicle. As the business owner, this means you get the advantage of changing your company’s reimbursement or stipend policy to match your budget.
Identifying the Disadvantages
If you do not carefully calculate how many miles a personal car will be driven for business purposes, you may end up giving your employee too much money as part of a monthly stipend, a disadvantage that affects your bottom line. Your employee may come to expect the extra income of the resulting salary boost, a disadvantage if you need to lower the amount of the stipend. One of the disadvantages of mileage reimbursement is that you and your employee must keep track of each mile you drive on behalf of the business, which gets tiresome.
Determining What to Pay
Before choosing between mileage reimbursement or a stipend, carefully calculate the amount of travel your employees do on your company’s behalf with their own vehicle. This allows you to create a budget. If you decide to go with mileage reimbursement, you also may want to consider paying for business travel-related parking fees and tolls, as long as the employee presents itemized receipts. If you decide not to cover parking and tolls, employees can claim a deduction on their taxes for these expenses.
