Charging for Car Mileage 3

[RichRook]

Working with a company that has (in my opinion) an odd practice where travel is concerned. Not a major issue - and nothing I really find that offensive, but I would classify it as a bit odd and wonder if I'm alone or if this is common practice. Here it is:

A company has a policy that when the travel distance is over a certain amount - I think about 250 miles or so - that the employee rents a car for the trip. They have a deal with the rental agency down the street and it's a pretty seamless process. If the expenses are billable, then the accountant asks to find out what the actual travel distance is and then bills the IRS rate for mileage - thus pocketing $50 to maybe a couple hundred.

So poll time . . No issue or a little sketchy. The client would be responsible for that amount anyway so maybe it's no problem. The company is about dozen employees

Thanks

 

[berkshire]

I do not think you can charge mileage unless you own the vehicle. If you lease a vehicle you have to charge actual expenses.
If I am wrong somebody will come on here and correct me very quickly.
B.E.

You are judged not by what you know, but by what you can do.

 

[Compositepro]

I think this is tax fraud.

 

[IRstuff]

Sure, it's fraud. Think what one could do with a cross-country trip mileage. Say, 6000 miles at 55 cents per. That's $3300 for what might be less than $1000 airfare. Wonder if I could the same with some of the drives I have. ;-)

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[zdas04]

The OP didn't say anything about taking the IRS rate off their taxes (you can't do that unless you own the vehicle), just that they bill that amount to clients. I don't think there is anything at all sketchy about that. You have to recover those expenses some way and if you write your contract to include mileage (as opposed to actual expenses or a day rate) then how else would you do it?

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[KENAT]

The OP is a little unclear but I think Zdas may be correct. If the OP's company charges the customer IRS mileage rate for miles driven I'm not sure I see the fraud - it's just one way of accounting for the costs of the vehicle use.

If memory serves (and it is getting fuzzy) my former employer in GB did similar - they had an approved mileage rate from the MOD which we charged for travel.

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[IRstuff]

"it's just one way of accounting for the costs of the vehicle use."

How is that? You pay rental, which is the cost of getting the vehicle, which has the mileage factor built into the rate. The only adder would be the actual expense. Since you paid one amount, but are charging a different amount, that's that misrepresentation, if not fraud.

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[RichRook]

Zdas04 is right. Assume that the company isn't doing anything as blatant as writing off unpaid mileage expense. .. just deducting actual expenses (Gas + rental) so certainly it wouldn't qualify as tax fraud...to me it still seems a questionable way of maximizing the fee. Just billing the actual expenses (which need to be tracked anyway for taxes) seems easier.

Off the topic a bit ..This company also only pays the employees $0.44 per mile under the argument that they don't always get reimbursed for expenses and that 44 cents is more realistic. (I'm more of the opinion that the irs usually doesn't give away money)

Rich

 

[zdas04]

IRStuff,
Let's couch the exercise a little differently. The company pays $35/hr to a Junior Engineer and charges out his time at $95/hour. Is that somehow wrong?

If they have a contract that expenses will be passed to the client without adders then the car thing is marginal, but those kinds of contracts are rare. Just like if the client has agreed to pay $0.10/page copied, it doesn't matter if the Xerox machine is company-owned or leased or Kinkos. Same way with vehicle mileage, the contract says $0.555/mile and it doesn't matter if they are then paying their employees $0.444/mile for using their personal vehicle, putting the employees in a fleet vehicle (either owned or leased), or paying Hertz $45/day for using theirs, the client still pays $0.555/mile.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[cvg]

it still seems a questionable way of maximizing the fee.

has nothing to do with maximizing a fee and this is a common practice. as engineers, we rarely profit off of mileage expenses. our revenue comes from billable hours. it is simply a cost effective way to provide a good, reliable vehicle without the expense of lease or purchase. taxes are handled by the accountants, and tax returns are not shared with the employees, but if I had to guess, the procedure is to deduct actual vehicle related expenses, not mileage billed to a client.

 

[MintJulep]

I think it depends on how the contract is written.

If it's "Automobile travel will be charged at the IRS rate per mile" then that establishes the billing rate for automobile travel. It does not prescribe who must own the automobile that is used.

The cost differential between mileage rate for use of a personal vehicle and renting is a commonly exploited loophole - either on a corporate or personal level.

I don't see it as being much different that expensing the allowed per-diem for meals, eating at Taco Bell morning, noon and night and pocketing the differential.

Per Diem meals --> Daily allowance, spend it or not as you want.

Travel to be billed at IRS mileage rate --> Allowance for distance traveled. Ride your bike, hitch-hike, whatever as long as you arrive where you're supposed to be on time.

If the contract is written tighter then it may be an issue.

 

[KENAT]

"Since you paid one amount, but are charging a different amount, that's that misrepresentation, if not fraud. "

Seriously? While a lot will depend on the terms of whatever contractual coverage is in place, making a blanket statement like this seems a bit off.

Say instead of mileage we're talking about some items you buy off the shelf, do no work on, and then pass onto the customer as part of your contract. For instance maybe part of your contract is that you supply a tool kit with the widget you supply.

Now it is common practice to charge some kind of pass thru mark up on that tool kit, if nothing else it covers the time taken to select the part, order the part, receive the part, stock the part, kit the part, ship the part...

While costs and overhead often get assigned to the hourly charge rate of personnel when doing cost accounting this isn't the only way to do it.

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[GregLocock]

I merely observe that an accountant has gotten involved and therefore there actually is an overhead to billing the mileage.

Cheers

Greg Locock


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[JohnRBaker]

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[Compositepro]

After rereading the OP I have to agree with zdas. This is a perfectly legitimate way to charge the customer for travel expense as long as it is agreed to by the customer.

 

[IRstuff]

"The company pays $35/hr to a Junior Engineer and charges out his time at $95/hour. Is that somehow wrong? "

There's a difference in that there are additional costs allocated to a billable hour that covers G&A, overhead, etc. This is one reason why purchased hardware in the aerospace industry is billed at a different value, to cover the costs associated with incoming inspection, purchasing overhead, inventory costs, etc.

I can't speak to what the OP's contract says, since they only mentioned their company's "policy," so if the contract requires billing by mileage, that's on the customer, so shame on them. But, in general, charging by mileage implies costs associated with the ownership of a vehicle such as actual fuel cost, maintenance, depreciation, etc., which is not equivalent to vehicle rental cost.

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[cvg]

oh for craps sake, billing by the mile doesn't imply anything. it is just a simple way to account for mileage expenses. To be fair, there are additional costs involved in contracting with a rental company, picking up, dropping off etc for rental vehicles that increases the overall cost. And for anything over just a few miles, I refuse to drive my own vehicle. If the company doesn't provide a vehicle than I have to rent one.

 

[zdas04]

Exactly. Ain't no smoking gun here. Just a consistent, repeatable, auditable way of billing clients for travel. Jeez.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[moltenmetal]

Two options here:

1) Bill for both the hours required to book, pick up and drop off the rental car, and for the rental, gas and insurance etc., or
2) Bill for mileage at the prenegotiated rate

Whether it's legit depends entirely on the wording of the contract.

Generally, expenses need to be accompanied by an expense report, just like billable hours are accompanied by a timesheet. What's on the expense report must be used as the basis for what is billed and is often submitted as proof of what was billed. Doing otherwise might be losing you a client over a very small amount of money which is a symbol for something else which is worth a lot more: a reputation for fair and honest dealing. Some contracts give clients audit rights on reimbursable work, so don't think it will go unnoticed forever. Frankly, hourly rate competition and pure reimbursable work is a curse on this profession and has reduced us to a commodity, so it's no surprise that people play these petty games to make a buck for their companies, but it's still a questionable business strategy.

Rentals are cheaper than the IRS (CRA in Canada) mileage rate, especially if the rental is picked up and dropped off during uncompensated overtime hours. Whoever works for straight salary and is billed out hourly for actual hours worked including overtime is being ripped off personally because those extra hours are being treated by the company as if they cost nothing and hence are worth nothing. Anyone in this situation should consider carefully whether or not they're receiving fair compensation. That O/T pay for O/T worked can be in the form of pay, a bonus, shares or time in lieu that you can actually take, but if it's nothing more than a steady paycheque you're being hosed big time.

 

[racookpe1978]

The company may also prefer to NOT face a problem when their employee is in car crash, motor or car failure while driving a private-owned vehicle compared to a rental vehicle where replacement/repair/maintenance is "inside " the rental contract. Lots of drivers actually prefer to use a rental car rahter than the family car for professional trips.

Did anybody notice that the IRS rate for 2014 mileage went "down" a little bit from 2013's value?

in my own case, even though I am about 50 miles from a major airport, check-in requirements, travel time to the airport and parking delays, luggage requirements and baggage fees, and other-side-of-the flight delays and car rental times means that almost any driving time less than 8 hours is faster house-to-job by driving. Also, no rental car fees, no airline fees and excess bag fees, no parking fees, easier transport all around.