Many business owners get tired of the constant paperwork needed to reimburse employees for travel. Not only is this system time-consuming, but it is not always as fair as it seems. The flat rate per mile is not enough to cover expenses in many areas, while employees in other places will be overpaid. Paying for expenses rather than miles also can be complicated, as car ownership requires a wide range of both fixed and variable expenses. Is a flat rate car allowance the right solution?
What Is a Flat Rate Car Allowance?
Because there is no perfect way to calculate employee car reimbursement, many business owners are tempted to simply give each employee a flat car allowance. In a flat allowance, employees who travel are given a set amount every month (or other set time period) that they have to stretch to cover business-related car expenses. This allows them to apply the money to whatever car expenses are most necessary and also encourages them to be frugal. However, there are many downsides to this arrangement as well.
Downsides of a Flat Allowance for Transportation
One of the major downsides of a flat rate car allowance is that it ignores the obvious differences in travel per employee. There is a good chance that your employees each drove a widely disparate amount of miles today and even this year. A flat rate ensures that you always underpay or overpay, never getting it just right.
Another disadvantage is that is encourages employees to stay as close to their home base as possible. They may be reluctant to take a longer drive to score a huge sale when it comes out of their own piggy bank.
Last, flat rate transportation allowances are usually inaccurate. When they are inaccurate in your favor, employees will campaign until you increase the amount. When they are inaccurate in the employee’s favor, you will hear silence and also pay too much every day.
Small expenses can add up quickly. While a flat rate car allowance for employees may seem like a great idea, most employers will pay dearly for just a few pages less of paperwork.
