FAVR – An IRS Tax-Free Mileage regulation since 1992

• The Fixed and Variable Rate (FAVR) for mileage reimbursement was created by the IRS in the early 1990’s
• It was created to take into consideration that the cost of driving and maintaining a vehicle varies from city to city, based on costs such as Taxes, Maintenance, Insurance, Fuel, etc
• Today FAVR is commonly used by companies ranging from Fortune 100 to SMB’s

What’s behind the Fixed and Variable terminology in FAVR

• Standard Vehicle – an important pre-requisite of FAVR
  • Fixed and Variable Rate is always calculated based on a standard vehicle selected for a group of employees. All costs are based on this vehicle and not the actual vehicle that an employee is driving. The thinking here is that this is a representative vehicle for the employee to do their job effectively. So if your group of employees requires a truck to do their jobs, selecting a Compact Vehicle as a Standard Vehicle is not a good idea. Select a Ford F150 or similar instead.
  • A company can choose to have multiple groupings of employees, each group associated with its own standard vehicle choice, for example:
    • Group A – the standard vehicle is a 2022 Toyota Camry LTE
    • Group B – the standard vehicle is a 2022 Honda Pilot, LT
  • The rates for Group A and Group B will understandably be different as the cost of owning and maintaining each of these two vehicles is different
• Fixed costs are related to Vehicle ownership over time, these costs remain the same (Fixed) based on a projected time period. The derived Fixed Rate is paid on frequent intervals, usually monthly
  • Depreciation – the cost of the value of a vehicle decreasing over the length of time it is owned. The longer it’s own and the more it’s driven the less its value. Ever wonder why those 100k BMWs are so cheap, they have depreciated almost 80% of their value
  • Insurance – insurance policy cost is determined by the vehicle, location, and driver profile. In the case of FAVR, only the first two are accounted for, the driver profile part is based on a generic person. This keeps it fair across the driving population (the good news is that companies are not paying higher reimbursements for high-risk drivers)
  • Taxes – these include License and Fees and Property taxes based on the users’ location. Some states/cities do not have taxes and so these are only applicable as required
  • Fixed cost example – Using the Honda Pilot as a standard vehicle, Johnny Mac, who lives in Manhattan is paid $412.00 monthly. Jon Williams, who lives in Cleveland, OH is paid $350.00 monthly.
• Variable costs are related to Vehicle Mileage, specifically business miles. The more miles are driven the higher the costs of Fuel used, Maintenance from wear and tear, and similarly the more frequently Tires will need changing. The derived variable rate is based on Cent per Mile, calculated as Number of Miles driven * CPM rate. Kliks allows you to pay Variable payments weekly, monthly or any other frequency of your choice
  • Fuel – the cost of fuel in the users’ location is taken into account along with fuel consumption ratings for the standard vehicle selected. Kliks uses the daily fuel rate based on location as fuel prices can change dramatically on a daily basis. Most other FAVR solutions do not have this capability and commonly use a rolling weekly average. Kliks also allows company admins to configure Fuel Grades as part of the FAVR rate configuration process, giving more granular control over the rate
  • Maintenance / Tires – the cost of maintenance for the standard vehicle selected. Again, Kliks gives company administrators granular control into what type of maintenance can be selected – dealer, independent repair shop or chain repair store. Costs are different across these classes
  • Variable cost example – Using the Honda Pilot as a standard vehicle, Johnny Mac, who lives in Manhattan is paid $0.44 for every business mile driven. Jon Williams, who lives in Cleveland, OH is paid $0.37 for every business mile driven

What to expect with Fixed and Variable Rate (FAVR) in 2022

• The cost of a standard vehicle when new usually is the only part of FAVR that will change as per IRS regulations. In 2022 FAVR will see associated changes more so due to appreciation of vehicle costs
• The cost of fuel and maintenance will also be rising in 2022
• In general, expect to see an increase of 8-12% in FAVR reimbursement rates for 2022. There are ways to keep costs lower by selecting insurance ranges that are lower for the standard vehicle, or by selecting standard vehicles that are more cost-effective
• Kliks gives you the largest range of standard vehicle selections as well as insurance and maintenance options that can be used to tailor reimbursement rates to suit budgets

The kliks FAVR advantage

• The widest range of FAVR based standard vehicles
• Granular control of the following costs
  • Maintenance cost range
  • Fuel
  • Insurance
• We are fully automated so we can also charge the lowest fees
• We believe in our product and service and that’s why have no requirements for 1, 2 or 3-year contracts.