calculated based on an odometer reading and the data captured by the app, and takes into account the type of fleet vehic
WHAT’S YOUR FLEET REALLY COSTING YOU?
HOW TO OPTIMIZE YOUR INVESTMENT AND CUT COSTS
CONTENTS 1 | The Risks of Fleet Vehicles----------------------------------------------------------------------------- 1 2 | Idle Vehicle Costs------------------------------------------------------------------------------------------- 2 3 | Insurance Claims and Liability----------------------------------------------------------------------- 4 4 | Fuel Cost-------------------------------------------------------------------------------------------------------- 5 5 | Hot to Lower Fuel Costs--------------------------------------------------------------------------------- 6 6 | How to Manage Risk and Eliminate Idle Vehicle Costs----------------------------------- 7 7 | Improving a Mobile Workforce----------------------------------------------------------------------- 9 © 2018 Motus, LLC.
THE RISKS OF FLEET VEHICLES We may be living in the digital age, but business still gets done in the real world, and that means getting out of the office and behind the wheel. Many companies depend on a mobile workforce to deliver products or services, and the go-to solution for some is investing in a fleet of company cars for their mobile employees to use.
There are certain expenses adding to a fleet vehicle’s total cost of ownership that companies might miss.
While a fleet program may seem ideal for several reasons – it can be perceived as a benefit or perk for employees; it lets a company control the vehicle types its employees drive; and it offers predictable lease costs – there are certain expenses adding to a fleet vehicle’s total cost of ownership that companies might miss.
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IDLE VEHICLE COSTS It’s obvious that a company with a fleet of cars would need one for each mobile employee – otherwise, people can’t do their jobs. But that becomes a problem when an employee exits the company, leaving the extra vehicles sitting unused. And even though it’s unused, it continues to rack up costs for the company. While the car sits idle, waiting for a new hire, the company is still paying the lease payment (including principal and interest) on the car – even though no one is driving it – as well as insurance. The company also must pay to recondition the car by detailing it inside and out, fixing any scrapes or body damage so it doesn’t look used when the next employee sits behind the wheel, and pay to transport the car to a new hire, who might not be based anywhere near HQ.
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While the car sits idle, waiting for a new hire, the company is still paying.
Idle Vehicle Costs
SIMPLE MATH SHOWS HOW MUCH THESE COSTS ADD UP
100 + 42 + 19% + $500
employed mobile workers
days to replace mobile workers
turnover rate
Say Company A employs 100 mobile workers across the country.
Whenever an employee leaves, it takes 42 days to replace them (per the 2016 national average, according to SHRM).
Company A sees the average 2016 turnover rate of 19 percent.
monthly payments
Company A pays approximately $500 a month for a lease payment and insurance.
= $13,000 + per year
Because of those 19 mobile workers who leave each year, Company A pays more than $13,000 annually for vehicles sitting unused. That $13,000 doesn’t account for reconditioning costs and storage costs – which can add a couple hundred dollars a month – or any transport costs associated with getting the idle vehicle to the new hire.
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INSURANCE CLAIMS AND LIABILITY Insurance for a company with a fleet has a significant impact on the bottom line. Many larger companies are self-insured, and sometimes overlook insurance as a cost entirely. Other companies are fully aware that they must pay for insurance if they offer company cars, and they’re fine with it – as long as the insurance costs only comprise the monthly premium. But that is never the case for either type of company. For starters, a company is liable for its fleet of vehicles 24/7. While accidents can happen at any hour, the exact time can sometimes be hard to know. This means that no matter when a fender-bender actually occurred, if it’s reported during working business hours, the company would be responsible for the repairs. Small fender-benders are just the beginning. If an accident results in injuries, or even death, the company could be held responsible. That’s because it owns the vehicle. So, in addition to dealing with the tragic circumstances of an accident, the business could also face other claims or even lawsuits. This is usually because of attorneys who want to hold the company responsible for a higher payout. The costs of accidents – minor and serious – add up to quite the expense. While the company probably can foot the bill for a dent here and a scratch there, the aggregate cost across an entire fleet is hardly pocket change. In fact, motor vehicle crashes cost companies $47 billion in 2013, at an average of 16 cents per mile driven.
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FUEL COST
There are generally two main ways to manage fuel expenses for a fleet: a fuel card, or a credit card. Neither of these is a perfect solution. For starters, both create reams of paperwork; every time someone fills up, it’s another line item to be accounted for.
The more mobile workers in a company, the more accounting needs to be done.
The more mobile workers in a company, the more accounting needs to be done. This means keeping track of a lot of travel. In addition to this, fuel cards and credit cards can sometimes be used for personal vehicles instead of business vehicles. Since it’s difficult to track when a mobile worker is traveling for work, it’s equally difficult to know when fuel purchases are being made for business travel. Because of this, there’s a lot to keep track of to make sure business expenses are being used in the right way.
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HOW TO LOWER FUEL COSTS Technology – in the form of a mobile app that prompts mobile workers to indicate whether they are driving for personal or business purposes in their fleet vehicle, and logs mileage appropriately – can simplify the reimbursement process and better manage personal versus business fuel use. Instead of using a company fuel or credit card, mobile workers pay their own costs, and are reimbursed at the end of the month for every business mile they drive. The reimbursement is calculated based on an odometer reading and the data captured by the app, and takes into account the type of fleet vehicle they used, the geographic market they serve, the price of gas in that region, and any other information relevant to that particular vehicle. A mobile app will help a business reduce its fuel costs by accurately determining business versus personal use, ensuring the fuel costs the company pays are only what it needs to. This also allows the company to appropriately tax the personal-use fuel, putting the company in full compliance with the IRS – because the technology does all the work capturing business versus personal use, without a company needing to rely on a mobile worker’s personal log, giving the company assurance of accuracy.
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HOW TO MANAGE RISK AND ELIMINATE IDLE VEHICLE COSTS While a mobile app that tracks fuel use helps cut down on fuel costs, a fleet company still needs to worry about idle vehicle costs, insurance costs and 24/7 liability – and that might mean seeking an alternative to a fleet of vehicles. Especially for companies that operate nationwide, have many mobile employees, or have a high turnover rate, it can make business sense to move away from a company car program and instead implement programs that reimburse employees for using their own vehicles for work purposes.
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It can make business sense to move away from a company car program and implement programs that reimburse employees for using their own vehicles.
How To Manage Risk and Eliminate Idle Vehicle Costs
THERE ARE THREE MAIN REIMBURSEMENT OPTIONS: Flat Car Allowances A car allowance program gives employees a set monthly allowance to offset their business-related driving costs. This makes it simple for a company to give out a predictable amount of money every month. It’s important to note, however, that reimbursements don’t account for differences in fuel costs, vehicle taxes or insurance premiums in different parts of the country. The employee also receives the allowance as part of a paycheck, meaning it’s taxed like income, which can be seen as a negative by employees. Additionally, companies have little control over insurance beyond asking an employee to provide initial proof of coverage, which adds an element of risk.
Cents-Per-Mile Rates Another type of program, cents-per-mile rates, reimburses on a flat per-mile rate for distances driven or reported, and is generally best reimbursing infrequent mobile workers versus the road warriors who are in their car for hours a day. Generally, the rate is the IRS’s predetermined mileage deduction, but companies can actually offer any cents-per-mile rates reimbursement they think is fair. Cents-per-mile rates might be less equitable for employees who work for the same company in different geographic areas; a fair reimbursement for someone in Des Moines might not be fair for someone living in Los Angeles, because of gas price differences.
Fixed and Variable Rate Reimbursement (FAVR) A third option is a Fixed and Variable Rate Reimbursement (FAVR) program, in which employees receive non-taxable reimbursements for their fixed (e.g., tires, depreciation) and variable (e.g., fuel) vehicle costs. This program offers several benefits to the company, including flexible program design and control of image and risk. It also provides fair and accurate, geographically based reimbursements, and IRScompliant mileage substantiation. Employees benefit as well: Their reimbursement is the closest match to the actual expenses of owning and operating their vehicle where they live and work. The plan is consistent, simple and allows flexibility in vehicle choice. The common benefit of all these programs is the elimination of the fleet entirely - meaning depreciation, insurance, reconditioning and storage/ towing costs are worries of the past, regardless of how many employees leave the company. 8
Depreclation, Insurance, reconditioning and storage/towing costs are worries of the past
IMPROVING A MOBILE WORKFORCE Companies that require a mobile workforce have several options for how to better manage a vehicle program. Technology can help reduce extra fuel costs associated with personal use of a fleet car, while moving away from a fleet and toward an allowance, CPM or FAVR reimbursement program can reduce risk and financial exposure. While all of these options may seem complicated to execute, there are reputable third parties that can help. The right vehicle program makes it easy to reimburse each mobile worker fairly and accurately. Mileage Reimbursement programs are designed to meet different business needs, and the best solution is dependent on what works best for an individual business and their mobile employees. Most businesses don’t want to be in the vehicle business, and would prefer to focus on what they do best: their own business. By partnering with these businesses, we help them reimburse the right amount for travel and help their mobile employees work more efficiently.
About Motus For companies with mobile workers that drive more than 5,000 business miles per year, Motus is the premier vehicle management and reimbursement platform. Through its sophisticated configuration engine that incorporates real-time data across hundreds of variables, Motus drives significant reductions in cost, ensures compliance, and reimburses employees exactly what they deserve. For more information about the company, please visit www.motus.com or connect with us on Twitter, Facebook, or LinkedIn. Learn more about Motus ▶
