Ever since I began delivery in May, I have paid my driver a flat $1.50 per delivery to reimburse them for gas and other auto-related expenses. My drivers like it and it’s pretty easy for me to manage. However, I’m in a predicament…
I realized that I was reporting this “reimbursement” to the tax guys and workers’ comp fund. I let them that I was over-reporting my payroll. As I believe this money is a reimbursement to my drivers for gas, insurance, wear & tear; I don’t believe it to be compensation and should not subject to taxes and workers’ comp premiums.
Well, I got a response from my WC broker and they want me to continue reporting this pay. I strongly disagreed, but they told me it was a commission. I replied that it was an expense reimbursement. The drivers are not incented by this money, it’s just to cover costs. But the insurance guys don’t seem to understand.
Your insurance guy is wrong. Period. (He is motivated by a bigger commission as the rate is base on percentage of wages) Not only should you stop paying it, they should reimburse any over payment. You probably also need to file a revised 941 for your federal withholding if you were reporting it there as well.
There is no reason for mileage to be reported ANYWHERE in the wage information chain.
In our shop we enter mileage paid on the driver checkout sheet and the driver signs it which constitutes a receipt of payment.
Call it mileage.
Stop reporting it.
As long as your hourly wage to the drivers is above minimum wage that is it. if your hourly is below minimum, the drivers need to report tips.
Nothing worse than a problem with your insurer when you have a claim…So if you want to do something that is not what the agent is asking for you better seek clarification from the insurer…If he is right and you are wrong you could have a coverage problem when a claim is made…Better to be safe than sorry…
There is no grey area about this. The tax code provides for reimbusing employees for the use their car for work. The money received is not reportable as wages for income, unemployent OR work comp.
It is also important, though, that the money not be paid on the paycheck. You can pay it in cash each night (most of us do) or you can cut a separate check for reimbursment (not through payroll!)
Hmm…I am certainly not an expert, however, my understanding is that the re-imbursement must relate to actual mileage…So if they drive 50 miles and you pay them a rate per mile (up to the IRS set rate) then that complies…But a flat rate per delivery does not… All I am saying is it is better to be safe than sorry…
PS…In 13 years as an insurance adjuster I recall denying a number of claims where something was not quite right in the underwriting information the insureds gave the insurers…The insurers do not lose very often…
By all means, check with your accountant about the tax code relating to how you remimburse drivers for the use of the car… but reimbursements are not wages.
It does not matter how the money is reimbursed to the employee, what matters is how the expenses are documented. Unless the employees are giving you receipts and returning the “unspent” portion to your company, the $1.50 per run is a wage. The only “safe” way to pay for employee expenses is to keep track of mileage and reimburse per mile at or below the federal rate - then it is sure not to be considered a wage.
You could claim “industry standard” - which is the technical term meaning: “this is how everyone in the industry does it and will continue to do it until the IRS drops the hammer and makes an example out of someone to scare the rest of the industry into doing it differently.” Not sure if that will work or not.
I agree, that 1.50 isn’t reportable. I was never taxed on my reimbursment money and to my knowledge my employer never reported it in the 10 years I worked for them.
Also, for IRS purposes it doesn’t matter whether or not your employees make min. wage or not. If they recieve more than $20 in a month in tips the IRS says they have to report it to you.