FAVR

What is FAVR?

FAVR, or Fixed and Variable Rate Allowance, is a reimbursement system for employees who use their own vehicles for business purposes. It is an employer-provided benefit that helps offset the cost of operating a personal vehicle for work-related tasks. FAVR combines two components, fixed and variable rates, to determine the reimbursement amount for each employee.

Fixed Rate Allowance

The fixed-rate allowance is a predetermined amount that covers the fixed costs of owning and operating a vehicle. This component of FAVR is designed to reimburse employees for expenses that remain constant regardless of the amount of business travel. Some of the fixed costs included in the fixed rate allowance are:

• Insurance
• License and registration fees
• Depreciation
• Taxes

Variable Rate Allowance

The variable rate allowance is a reimbursement for the variable costs associated with operating a personal vehicle for business purposes. This component of FAVR is designed to reimburse employees for expenses that vary depending on the amount of business travel. Some of the variable costs included in the variable rate allowance are:

• Fuel
• Maintenance and repairs
• Tires
• Oil changes

How FAVR Works?

FAVR combines fixed and variable rate allowances to determine the total reimbursement amount for an employee. The fixed-rate allowance is determined based on the employee’s location and the type of vehicle they drive. The variable rate allowance is determined based on the number of miles the employee drives for business purposes. The total reimbursement amount is calculated by adding the fixed and variable rate allowances together.

The fixed-rate allowance is calculated using a formula that takes into account the following factors:

• Depreciation
• Insurance
• License and registration fees
• Taxes

The variable rate allowance is calculated using a formula that takes into account the following factors:

• Fuel costs
• Maintenance and repairs
• Tires
• Oil changes

The total reimbursement amount is calculated by adding the fixed and variable rate allowances.

Benefits of FAVR

Fixed and Variable Rate Allowance offers several benefits to both employers and employees. Some of the benefits of FAVR include:

• Fairness: It is a fair reimbursement system that takes into account the actual costs of owning and operating a vehicle for business purposes. This means that employees are reimbursed based on the actual costs they incur rather than a one-size-fits-all approach.
• Cost savings: It can save employers money by reducing the administrative costs associated with traditional mileage reimbursement programs. FAVR also encourages employees to use more fuel-efficient vehicles, which can save on fuel costs.
• Tax advantages: It can offer tax advantages to both employers and employees. Employers can deduct FAVR reimbursements as a business expense, while employees can exclude FAVR reimbursements from their taxable income.
• Improved compliance: It can help employers comply with federal and state regulations by ensuring that their reimbursement program is fair and consistent.

Conclusion

FAVR is a reimbursement system that combines fixed and variable rates to reimburse employees for the cost of using their personal vehicles for business purposes. FAVR offers several benefits to both employers and employees, including fairness, cost savings, tax advantages, and improved compliance. By understanding FAVR and its components, employers can implement a fair and effective reimbursement program that benefits both parties.