Driving Service Department Profits14 May, 2004 By: Ronelle Ingram imageSource
Driving Service Department Profits
an age-old quandary for businesses—company cars or per mile reimbursements?
While company owners and field personnel will always debate this issue, there is
no right or wrong answer.
Although company cars are a wonderful benefit for any employee, they are,
nevertheless, a costly endeavor for a business. Costs extend far beyond the
initial price of the vehicle, ongoing fuel and maintenance. Once a company
begins providing vehicles, a fleet car manager is necessary and an enormous
amount of time on record keeping is required to optimize the investment. In
addition, you become responsible for all the daily situations that come with the
ownership or lease of these vehicles. Company Car Concerns
Whenever a car breaks down it becomes your responsibility to have another
employee pick up the stranded tech; get the car towed; arrange and pay for the
repair; provide a replacement vehicle; and chauffer the tech around until you
can provide that person with a working mode of transportation. While attending
to transportation problems, the tech is being paid for little more than sitting
around and waiting.
companies that supply vehicles restrict non-company related use. Those that do
permit personal use usually assess a set cost per month that must be paid by the
employee. When an employee pays for evening and weekend use, companies must be
very specific about who else is eligible to drive the company-owned vehicle.
There are creative ways to pay for employee-owned cars with mileage
reimbursement rates actually structured around desirable work habits. If the
goal is to have techs drive late-model, well-running vehicles, you can pay for
performance. Cars that are less than three years old can earn an employee a
penny or two bonus per mile over the base rate. On the other hand, a staff
member with a vehicle three to five years old would receive a lesser amount per
mile, and so on.
Paying per mile reimbursement is typically more cost effective than spending
time monitoring a fleet, even if the fleet is merely a single car. Basically, an
allowance eliminates the headaches of vehicle repair costs and up keep.
addition, when continual breakdowns are negatively affecting a tech’s attendance
mileage compensation can be reduced. The mathematical logic is sound. When an
employee-owned car is not in running condition during regular work hours, paying
a lesser percentage of the cost of the vehicle is appropriate. Any month that
field working time is missed due to car trouble the per mile reimbursement rate
is reduced for the entire month.
these times of record-high gas prices, acknowledgement of the situation is
necessary. It is important that management shows sensitivity to the plight of
those employees who use their personal vehicles in their work. A temporary
increase of a penny or two per mile, or a creative reimbursement program, may be
worth the cost if it improves employee morale.
Internal Revenue Service has very specific rules about employee mileage
reimbursement and use of company owned vehicles. If you pay a flat monthly rate
the money must be treated as taxable income. (The owner of the vehicle may take
deductions at the end of the year on their personal income tax.) An employee
cannot be reimbursed for driving to or from work or for their first call (if it
is closer than the office). When the company-owned car is driven to work those
miles must be considered taxable income. The 2004 IRS allowable (tax-free)
reimbursable rate is 37.5 cents per mile. Yes, it is an involved issue, but
there is information available on the IRS’ website at www.irs.gov.
Charging Customers for Travel Time
Once you decide how your company is going to provide transportation for your
field tech, you must establish a way for your company to be reimbursed for the
time and expense of traveling to a customer’s location.
Charging a set travel cost, which some companies add to their hourly service
rate, is very common. Charges of $5 to $110 for travel are commonly seen. By
increasing the base service rate to include the cost of travel, issues of travel
charges are instantly eliminated. Using the verbiage, “priority response $25,”
may be more acceptable than, “travel charge $25.” Some believe separating the
labor rate from the travel rate makes their service charge appear more
competitive in their marketplace.
dealership must establish guidelines to deal with the travel and car issues in
their own way. The key to dealing with travel expenses is to be aware of the
various issues when establishing your company’s policies. Do not be afraid to
periodically review and change the way you are paying mileage or charging for
travel time. A company car is a privilege, not a right.
Establish written policies. Review and change them as needed and be fair.
Monitor the use of company cars. Review the expense reports before payment.
Establish appropriate business practices. Treat the company car or mileage
reimbursement as any other ongoing business expense. Use monetary reasoning
rather than emotions.
Service Department Travel Points to Ponder
Is the customer
billed for travel on the return call?
If a customer
requests a service call and the office is closed upon the techs arrival, do
you charge for travel only?
Is a minimum
service call rate charged?
If a customer is
outside your regular service area will you service them for an additional
Should you charge
by the mile or by the hour?
Should the starting
point be your office or the location of the last service call?
If your sales staff
sells outside a designated area, should the customer be penalized with a
higher travel charge?
Will you establish
travel zone charges with varying rates for different areas, and will zone
charges be extended to different rates on your service agreements?
For those of us who
service in areas that require payment for parking, who pays that cost, and is
the customer assessed the cost of parking?
Should service agreement rates vary if parking costs $10 per hour, and can you
require a customer to validate parking or pay the additional cost?