That’s how much time the average American spends commuting to the office one way. Do the rest of the math, and each person spends about nine days commuting. That’s a lot of time to spend in the car — even if you use it listen to audiobooks or otherwise enrich yourself.
Add in the cost of annual car insurance ($2,329), gas ($3,000), maintenance ($900), depreciation, and taxes, and employees are losing more than just time. They’re eating a sizable chunk of their salary.
With such a massive contribution of money and time, top-tier employees will always look for companies with the best perks and benefits. Health insurance, paid time off, and retirement plans are relatively ubiquitous in today’s workplaces. However, vehicle and gas stipends are quickly becoming more popular.
By offsetting the costs of vehicle ownership and fuel, employees have one less thing to worry about, effectively making them happier, more productive workers. If you’re considering a vehicle and gas stipend, discover how to create, manage, and implement your idea with this handy guide.
A vehicle and gas stipend is fairly straightforward. It works similarly to other stipends but pays an employee specifically for fuel and vehicle-related expenses throughout the year, regardless of whether they drive a company car or personal vehicle.
Also known as a car allowance program, vehicle reimbursement, or vehicle allowance, a vehicle stipend is a variable or fixed amount of money — typically monthly — an employee receives for vehicle-related expenses. Allowable expenses cover maintenance, cleaning, wear and tear, and insurance. Generally speaking, a vehicle stipend doesn’t necessarily offset commuting costs; it covers a vehicle for business purposes, whether a company or personal car.
Vehicle stipends can be fixed amounts added to an employee’s monthly paycheck. Alternative plans may use variable rates, as business mileage is a variable cost that changes with business use. Many businesses also use a standard mileage rate for mileage reimbursement, which can be fixed or variable depending on how much the employee drives.
FAVR programs — IRS-approved fixed and variable rate programs — have gained popularity. They combine variable and fixed costs that reflect actual expenses in a tax-free format to avoid income tax waste.
As the name implies, a gas stipend is a set amount of money given to employees for business travel. Employees can use a company car or their own vehicle and still receive the monthly stipend. Gas stipends are typically added to the employee’s wages. Still, some companies also offer gas cards or mileage reimbursement programs based on the number of miles regular and mobile employees drive.
Employers can base their gas stipend on the IRS cents-per-mile rate or an internally sourced employee mileage reimbursement rate that reflects the actual costs of gas — especially with fluctuating gas prices common around the country. Employees must keep a mileage log of their work-related driving to get the proper reimbursement.
Vehicle and gas stipends provide plenty of flexibility. You can structure these accountable plans in many different ways depending on your needs, number of employees, and budget. By understanding the intricacies of these plans, you can figure out the best option for your business and HR needs.
A cents-per-mile program, or CPM, reimburses team members for the amount they drive based on the employee’s mileage tracking. The IRS mileage rate acts as a benchmark for a CPM program, offering the following rates in 2024:
As an employer, you don’t necessarily have to pay this standard rate amount, especially if you offer a separate vehicle and gas stipend for non-gas vehicle expenses. However, a CPM program has little accounting or documentation, making it the preferred option for smaller companies with fewer accounting or HR resources.
Remember that an employee may have to pay taxes if their vehicle and gas stipend is more than 67 cents per mile on average. For example, if employees receive $500 monthly but drive 500 miles, their reimbursement rate would be $1 per mile. As such, they would have to pay tax on anything over $0.67. In this case — $1-$0.67. They would have to pay taxes on ($0.33*500) $165.
A flat-rate vehicle and gas stipend should suffice if you don’t want to worry about documentation or need a set-it-and-forget-it approach. The average vehicle allowance hovers between $575 and $600 per month.
While this stipend may not offset a car note, it’s a reasonable rate for maintenance and gas unless your employee travels long distances, which can incur more vehicle costs and gas usage.
A fixed and variable rate program (FAVR) is perhaps the most popular vehicle and gas stipend for medium- and large-sized companies and the only IRS-approved one. What makes the FAVR program so powerful is that it addresses both fixed and variable car expenses, factoring in every element of owning a car. This includes considerations for:
By considering these aspects, employers can enjoy a FAVR program that provides frameworks for the stipend program, reimburses accurate amounts, and can help employees avoid taxes. Around 40% of vehicle and gas stipends go directly to taxes, making a FAVR program an excellent alternative.
CPM and flat-rate programs aren’t complicated, but a FAVR program comes with IRS stipulations you can’t ignore. Without meeting qualifications, a FAVR program can cause the employee to incur extra taxable income — the very thing you’re trying to avoid. Learning more about FAVR can help you avoid these taxes, understand employee eligibility, and decide if it’s ultimately the right fit.
To qualify for a FAVR program, employees must meet three rules:
The FAVR vehicle profile plays a pivotal role in these types of programs. Think of it as a hypothetical car the IRS uses to determine fixed and variable costs. The information you input is compared to the actual vehicle, calculating your reimbursement amount.
The best part about an FAVR program is that it’s entirely tax-free. Employers usually pay the amount in a tax-free lump sum at the beginning of the year, and the employee then receives the money without setting any aside for estimated or end-of-year taxes.
Unfortunately, not every FAVR program will be entirely tax-free. If an employee doesn’t drive 5,000 miles or the vehicle falls out of compliance, the IRS will tax the vehicle and gas stipend as taxable income.
Forty-seven states have no explicit laws regarding a vehicle and gas stipend. However, if your company is located in or does business in Illinois, Massachusetts, or California, you must know the law to make your car allowance work.
According to Illinois law, “An employer shall reimburse an employee for all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer.”
Employees must report mileage and expenses to the employer within 30 days of incurring them. Illinois reimburses at the IRS rate of 67 cents per mile.
California law requires employers to “indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” While the law has no specific reimbursement rate, most vehicle and gas stipends follow the IRS 67-cent deduction.
Massachusetts law “requires that employees who are required or directed to travel from one place to another after the beginning of or before the close of the work day be compensated for all travel time and reimbursed for all transportation expenses.” Like California, Massachusetts has no set reimbursement rate, but courts have agreed that the 67-cent IRS deduction is preferable.
You need the best perks and benefits to attract talent and maintain your current office rock stars. A vehicle and gas stipend is an excellent place to start, but remember that many other stipends can entice new and current workers to stay loyal. Some other stipends to consider include:
While you can create numerous stipend programs, how you deliver them is a constant concern. Hoppier makes vehicle, gas, and other stipend programs easy. Using Hoppier, you can create a digital gift card with your company logo, amount, and expiration. Any unused amount goes back into your account. Get started with Hoppier today to see how our gift cards can become vital to your stipend programs.
Ready to 2x your global engagement at your next event, with Ox stress?
Make Hoppier your unfair advantage today, schedule a demo
Ready to 2x your global engagement at your next event, with Ox stress?
Make Hoppier your unfair advantage today, schedule a demo
Ready to 2x your global engagement at your next event, with Ox stress?
Make Hoppier your unfair advantage today, schedule a demo
Ready to 2x your global engagement at your next event, with Ox stress?
Make Hoppier your unfair advantage today, schedule a demo
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