No federal rules require a private company to provide reimbursement for the use of personally owned vehicles when employees conduct company business, but some states do require reimbursement for employee vehicle use. Your plan should -- at a minimum -- abide by these state laws, but it doesn't have to be limited to the minimum. It is common for a company that requires or expects employees to use their own cars to pay some form of reimbursement for the miles driven. Your company has several options for covering the costs of private vehicle use at work.

Follow the Federal Government Standard

Each year the Internal Revenue Service sets a standard mileage rate to be used when claiming business use of a vehicle as a tax deduction. Private companies often choose to reimburse employees for business use of their vehicles at the same rate set by the IRS. Employees must keep track of their business use mileage and submit a mileage report -- typically once a month -- for reimbursement. The IRS mileage rate is set each year to reflect the costs of maintaining and operating a vehicle. For 2014 the rate is 56 cents per mile.

Flat or Alternative Payment Schemes

A company has the latitude to set up any other type of reimbursement plan that management feels is fair to employees and makes sense financially for the business. A simple option would be to pay a flat rate to employees who regularly use their cars on the job. The payment would help the employees cover their vehicle expenses. Another option would be to cover fuel costs. This can be accomplished by having a company account at a specific gas station or letting employees use company fuel cards. With fuel reimbursement, employees need to be made aware of the consequences of abusing the system.

Let Employees Take the Deduction

If an employer does not reimburse vehicle expenses for on-the-job driving, an employee can claim the costs on her personal tax return. The employee can use either the IRS standard mileage deduction or keep track of actual vehicle expenses and use the amount equal to the percentage of miles driven at work as a deduction. Only individuals who itemize on their tax returns can deduct business use of vehicle costs. For a business that relies on employees to use their own cars, a no-reimbursement plan may result in resentment about the practice.

Base Plan on Company Expectations

In most cases a small company will want to institute some form of reimbursement plan if employees regularly use their cars for company business. Which type of plan depends on how much the employees use their cars and the business's finances. For irregular vehicle use, reimbursing using the IRS or another mileage rate keeps the vehicle usage and money paid to the employees proportional. If certain employees -- such as outside salespeople -- use their cars continuously, some form of a flat payment or fuel reimbursement makes the business expense more predictable.


Photo Credits

  • Jupiterimages/Creatas/Getty Images