Company vehicles aren’t always available, particularly for smaller and growing businesses. This can lead to situations where employees must use their own cars for work-related travel. Whether visiting clients, heading to the airport, or making deliveries, personal vehicle usage may qualify employees for mileage reimbursement. The IRS provides a 2023 reimbursement rate, but there’s more to consider.
Some business leaders believe that since the IRS sets the reimbursement rate, federal law requires employee compensation for vehicle use. This is only true in certain cases, and some state laws may have additional requirements. However, reimbursing employees for vehicle wear and tear can be a good business practice, even when not mandated. Here’s an overview of the 2023 mileage reimbursement guidelines.
What Is Mileage Reimbursement?
Mileage reimbursement is often confused with business travel expenses, but they are separate concepts. Mileage reimbursement specifically refers to compensating employees for expenses related to using their personal vehicles for company business. This is typically calculated on a per-mile basis.
Reimbursement is intended to cover fuel costs, vehicle maintenance, and depreciation, without the company directly covering those costs. For instance, if an employee spends $30 on gas for a work trip, they will only receive the per-mile reimbursement, not an additional $30 for fuel costs.
To clarify your company’s stance, establish well-defined travel and reimbursement policies. When creating these policies, consider federal and state mileage reimbursement laws, employee vehicle usage frequency, and tax implications of your mileage reimbursement strategy.
How Much Is Mileage Reimbursement?
Most companies follow the IRS’s published mileage reimbursement rate, which is regularly updated. For 2023, the rate is 65.5 cents per mile, reflecting a 3-cent increase from mid-2022 due to rising gas prices.
Although the IRS mileage reimbursement rate is widely accepted, federal law does not require businesses to reimburse employees for mileage and vehicle costs. The only exception is if the expenses would cause an employee’s compensation to fall below the federal minimum wage.
Some state laws do require mileage reimbursement, and many business leaders view it as a reasonable expense since employees use their personal resources for company benefit.
How To Calculate Mileage Reimbursement
The formula for how to calculate mileage reimbursement is simple: multiply the number of miles traveled by the reimbursement rate. For example, if an employee travels 100 miles for work, using the 2023 IRS rate, the calculation would be:
100 x $0.655 = $65.50
However, business leaders often focus more on mileage tracking and reimbursement processing than on the basic formula.
When business leaders ask “How is mileage reimbursement calculated?” they’re likely less concerned with this simple formula and more with how mileage is tracked and employees receive their reimbursements.
Mileage Reimbursement Best Practices
To ensure your reimbursement policy is clear and fair, it should be easy for employees to find the policy. An internal company website with the reimbursement form helps streamline the process. An FAQ section on the website with the question “How much is reimbursement for mileage?” can save your accounting team from answering that question over and over.
The trickiest part of mileage reimbursement has always been accurately tracking the number of miles the employee travels. If they forget to log mileage on their car’s odometer, estimates are often used. This has historically led to companies overpaying for reimbursements. Thankfully, automated GPS tools and apps exist today that produce much more accurate mileage reports.
Once mileage forms have been turned in, the last step is to process the reimbursement in a timely fashion. Make the turnaround time a part of your reimbursement policy so that employees know what to expect. For example, you could issue reimbursement checks once a week or twice a month, whichever works best for your AP team.
Choose inDinero for Help With Policies Like Mileage Reimbursement
Most companies have to deal with mileage reimbursement at some level. Smaller companies might not have work vehicles for employees to use, creating many situations where employees need to be reimbursed for mileage traveled. But even large companies with many remote offices will need to process reimbursements, as employees travel to and from the company headquarters.
No matter the size of your company, a clear and effective reimbursement policy saves your company money and keeps employees happy. It’s just one of many financial policies a company needs to succeed. For help and guidance on these policies, choose the experienced team at inDinero. Reach out to us today to see how we can help.