Mileage reimbursement is much more precise and fair to all employees than having the fixed amount paid per vehicle. What are the Pros & Cons of mileage reimbursement? Also, if employees are spread out over different regions where car costs vary, it can make the system imbalanced. Even so, your employer must be careful not to set the allowance too high, because then they will be paying employees for trips they never took, which is already seen as an expense fraud case. If one employee drives hundreds of miles with his car for work and other employees use their vehicles much less frequently, it can create an inequitable allowance.īecause neither of the two employees will drive the same distance each month, one employee will inevitably be underpaid and the other will be overpaid. Once the amount of the car allowance is determined, as well as how and when employees will be paid the car allowance, the system is ready to use.īut on the other hand, it can be difficult for companies to set car allowances that are fair to all employees. It is a simple and straightforward program to set up. The most significant advantage of car allowance is that it is more understandable and less time-consuming for employees and organizations as well. What are the Pros & Cons of car allowance? Then the employee is reimbursed based on how many km/ miles he drove the previous month. But in this case, he tracks the business miles every month and includes it with his monthly expense report. Here is the same example when an employee is driving a personal car to visit clients for work. The most important is that the amount doesn’t change each month, no matter how far his clients are. This amount has to cover things like fuel, wear-and-tear, tires, and more. The company gives him a set amount over a given time for these expenses, so that employee could cover the costs of using his car. One employee uses a personal car for visits to clients. To understand it better, let’s take a closer look at how it works: Car allowance option If the amount is equal to or less than the standard IRS (Internal Revenue Service) rate, mileage reimbursement is tax-free. And the mileage reimbursement is the rate in cents per e multiplied by the employee's monthly mileage. The difference between these two options is that a car allowance is a periodic allowance paid to an employee for the use of a vehicle and is usually taxable. What is the difference between a car allowance and a mileage reimbursement?
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