Mileage reinbursement query...

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bener

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Topic # 97193 13-Feb-2012 14:59

Hi there folks,

Just a quick one - if I am being paid mileage and my employer is, in turn, claiming those miles from the company we are sub-contracting for, is it legal - or ethical - to pay me less per km than is being claimed?

I understand that it is completely the norm to charge out your employee at a higher rate than he/she is paid, that is how the business makes its margains, but surely the mileage fees should be passed on?

I'm sure someone here knows the ins and outs of this situation better than I do - this is my first position where I am required to use my own vehicle, and I am clocking up thousands of km's per week - the mileage rate, I feel, will not adequately cover costs (although I am yet to do all the figures).

I have researched recommended (AA, IRD) and current (M.O.E. etc) rates and mine is far below the average - I am fairly certain the contract will be for a higher mileage figure.

Any info will be much appreciated!

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Reply # 580892 13-Feb-2012 15:12

How much are you getting per KM? I pay out $0.80 put that is probably more than is needed.

Actual cost is usually around $0.50 per KM depending on type of driving or car etc.

In terms of claiming back more than he is paying that is illegal and if he gets audited their would be trouble.

Tabuti

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Reply # 580895 13-Feb-2012 15:17

I?m no expert.. But I?m sure there is a minimum that they have to pay you.

If Your boss has a contract with another company for $x.xx per km then I don?t see any illegality in what he is doing, just make sure you are getting at least the minimum or negotiate a rate you feel is acceptable.

If your boss is paying you for 100 KM and claiming 150 KM the yes he would be naughty but I think from your post your referring to the above.

How much are you getting per KM?

I get around $0.70 per km roughly

EDIT - IRD said $0.74 (this I'm pretty sure is the Min you have to be paid per km), most likely that is what I am on working for a SOE

bener

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Reply # 580913 13-Feb-2012 15:36

I would rather not post it on a public forum at the moment, but I will PM you with the rate... It's low!

I don't think my employer is claiming more miles than actually travelled, my concern is that I am being paid a rate for mileage that is lower than the rate that the company is paid.

E.G. (not actual figures): I do 100kms, I am paid $0.50 for each km. When the boss submits his invoice to the company we do this work for they pay the comany $0.70 for each km, while I am the one that has used my car to drive said km's...

jbard

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Reply # 580933 13-Feb-2012 16:17

OK i understand you better now, so what your employer is doing isn't illegal but is unethical.

Have a look here:

http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/

IRD suggests $0.74, the also mention you shouldn't reimburse employees less then this although you can give them more than this.

They don't say if it is illegal to give out less than this though.

bener

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Reply # 580938 13-Feb-2012 16:24

Yeah, that's kind of what I gathered from the IRD site too. I will be bringing the issue up shortly either way, if I remember I will update the situation... Thanks for your input!

dipper

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Reply # 580950 13-Feb-2012 16:57

Hi,

Just a quick point for you ...you can be reimbursed for actual business usage including depreciation on your car, interest costs on any debt on the car, WOF, Insurance, R&M, Oil top ups, tyre replacements etc

For example:

Car costs 30,000
You do 10,000 km?s per year of which 5,000 km?s is business related
You have a 3 year hire purchase at 8%
Fuel Costs 2.08 per Ltr
Insurance: 550 per year
WOF: 45 per 6 months
Oil Top Up @ $12 per Ltr per 5000km

The Reimbursement would be as follows:

Total Cost Business Usage
Fuel @ 14 ltr per 100 km's 1486 743
Interest 2,400 1,200
Depreciation 9,000 4,500
WOF 90 45
Insurance 550 275
Oil Top Ups @ $12 per Ltr per 5000km's 120 60
TOTAL 6823

or 1.36 per Km's

Please note that the burden of proof for claiming a reimbursement is on the employee and not the employer and if you are ever audited then any reimbursement that is deemed in excess is classified as taxable income.

I hope that this helps.

gzt

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Reply # 580971 13-Feb-2012 17:53

bener: if I am being paid mileage and my employer is, in turn, claiming those miles from the company we are sub-contracting for, is it legal - or ethical - to pay me less per km than is being claimed?

Yes, it is a good question because the mileage paid/received is essentially tax free. If your employer is going to pocket that tax free and pay out less, then it may raise the question (IMHO of tax avoidance). It is clearly not intended to count as income. [Edit: but it may depend on how the contract is structured]

If you were able to obtain a general written statement from the IRD on the implications of the differential in practice and passed that on to your employer or their accountant, well ok, that would be one way of going about it, but that also might have implications for the relationship.

But from a purely practical perspective - whatever arrangement your employer has with the third party is between those two parties.

Likewise what you get paid in mileage is between your employer and yourself. So the long answer is you need to make the case to your employer that the rate you are being paid does not come close to covering your costs. I suggest documenting this case on paper for use during that discussion, which will include a good breakdown of what your costs actually are per km. Remember - that is the real issue for you.

Somewhere in there you can document and add the case that your current compensation falls short of the IRD's standard calculations and whatever other benchmarks you can find.

A bit of advice - I would be careful about bringing up your knowledge of your employers master contract arrangements directly in your discussions with your employer, because unless it is something that you are expected to come into normal contact with as part of your job it may cause offence one way or another.

itxtme

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Reply # 581174 14-Feb-2012 05:05

gzt:
bener: if I am being paid mileage and my employer is, in turn, claiming those miles from the company we are sub-contracting for, is it legal - or ethical - to pay me less per km than is being claimed?

Yes, it is a good question because the mileage paid/received is essentially tax free. If your employer is going to pocket that tax free and pay out less, then it may raise the question (IMHO of tax avoidance). It is clearly not intended to count as income. [Edit: but it may depend on how the contract is structured]

If you were able to obtain a general written statement from the IRD on the implications of the differential in practice and passed that on to your employer or their accountant, well ok, that would be one way of going about it, but that also might have implications for the relationship.

But from a purely practical perspective - whatever arrangement your employer has with the third party is between those two parties.

Likewise what you get paid in mileage is between your employer and yourself. So the long answer is you need to make the case to your employer that the rate you are being paid does not come close to covering your costs. I suggest documenting this case on paper for use during that discussion, which will include a good breakdown of what your costs actually are per km. Remember - that is the real issue for you.

Somewhere in there you can document and add the case that your current compensation falls short of the IRD's standard calculations and whatever other benchmarks you can find.

A bit of advice - I would be careful about bringing up your knowledge of your employers master contract arrangements directly in your discussions with your employer, because unless it is something that you are expected to come into normal contact with as part of your job it may cause offence one way or another.

I agree, smells like he is offsetting taxable income under the rouse of travel!

bazzer

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Reply # 581188 14-Feb-2012 07:38

The other point to mention is that those rates that you quote are not based on doing "thousands of km's [sic] per week". The cost per km would generally decrease the more kms you do, due to the fixed costs being spread.

gzt

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Reply # 581194 14-Feb-2012 08:16

Yes, remember that the figure used by IRD is a guideline maximum rather than a minimum.

Also, the situation you outline may not be entirely intentional on your employer's behalf. For instance, if they accounted for it as income and were paying tax on it. Yes, that would be silly.

http://en.wikipedia.org/wiki/Hanlon's_razor

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Nety

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Reply # 581200 14-Feb-2012 08:27

dipper: Hi,

Just a quick point for you ...you can be reimbursed for actual business usage including depreciation on your car, interest costs on any debt on the car, WOF, Insurance, R&M, Oil top ups, tyre replacements etc

For example:

Car costs 30,000
You do 10,000 km?s per year of which 5,000 km?s is business related
You have a 3 year hire purchase at 8%
Fuel Costs 2.08 per Ltr
Insurance: 550 per year
WOF: 45 per 6 months
Oil Top Up @ $12 per Ltr per 5000km

The Reimbursement would be as follows:

Total Cost Business Usage
Fuel @ 14 ltr per 100 km's 1486 743
Interest 2,400 1,200
Depreciation 9,000 4,500
WOF 90 45
Insurance 550 275
Oil Top Ups @ $12 per Ltr per 5000km's 120 60
TOTAL 6823

or 1.36 per Km's

Please note that the burden of proof for claiming a reimbursement is on the employee and not the employer and if you are ever audited then any reimbursement that is deemed in excess is classified as taxable income.

I hope that this helps.

I don't think interest, wof's and insurance are normally included in the calculation as it is not your employers concern if you owe money on the car or not, for Wof and insurance they do not cost more because you are using your car for work so there is nothing to cover. They are covering the costs of you using your car for work. So fuel, mechanical wear, tires, consumables (oil etc.) and depreciation though increased km's. Also 1.36 is way over the norm. If you get that you are very very lucky. If you are paying that then you are giving to much IMHO.

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bener

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Reply # 581201 14-Feb-2012 08:27

Thanks everyone for your info - dipper, your figures are helpful, I will use a similar method to check my final costs once I have some more records, thanks for taking the time to write it up.
gzt - you make a good point, and I would be very reluctant to bring up the discussion of what the other company pays us - it is only an 'educated guess' at present and you are right, it would definitely cause tension. Haha and thanks for the link to Hanlon's Razor - I will remember that!
bazzer - I had never thought of that, I am definitely doing over 1000km per week at present.

Also, jbard, thanks for the input as well.

keewee01

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Reply # 581214 14-Feb-2012 09:13

Nety:
dipper: Hi,

Just a quick point for you ...you can be reimbursed for actual business usage including depreciation on your car, interest costs on any debt on the car, WOF, Insurance, R&M, Oil top ups, tyre replacements etc

For example:

Car costs 30,000
You do 10,000 km?s per year of which 5,000 km?s is business related
You have a 3 year hire purchase at 8%
Fuel Costs 2.08 per Ltr
Insurance: 550 per year
WOF: 45 per 6 months
Oil Top Up @ $12 per Ltr per 5000km

The Reimbursement would be as follows:

Total Cost Business Usage
Fuel @ 14 ltr per 100 km's 1486 743
Interest 2,400 1,200
Depreciation 9,000 4,500
WOF 90 45
Insurance 550 275
Oil Top Ups @ $12 per Ltr per 5000km's 120 60
TOTAL 6823

or 1.36 per Km's

Please note that the burden of proof for claiming a reimbursement is on the employee and not the employer and if you are ever audited then any reimbursement that is deemed in excess is classified as taxable income.

I hope that this helps.

I don't think interest, wof's and insurance are normally included in the calculation as it is not your employers concern if you owe money on the car or not, for Wof and insurance they do not cost more because you are using your car for work so there is nothing to cover. They are covering the costs of you using your car for work. So fuel, mechanical wear, tires, consumables (oil etc.) and depreciation though increased km's. Also 1.36 is way over the norm. If you get that you are very very lucky. If you are paying that then you are giving to much IMHO.

My understanding was that any per km rate was to cover normal wear and tear and running costs. WOF, etc are certainly all normal running costs for a vehicle. And if the vehicle is being used primarily for work, then the employer should be covering that proportion of all costs. But interest I wouldn't expect to be covered. Depreciation - I would expect to be covered for prolonged use.

Actually - insurance is a seriously major one. Check your insurance policy as you will likely find that if you have an accident whilst using your private vehicle for work purposes that you are not covered.

To my knowledge this is a standard clause across the insurance industry on private vehicle cover.

You will need to make sure that your employer has cover for you using your private vehicle. If they don't then you are exposed to risk and should either insist that they cover you under their insurance, or you need to seek the additional cover from your insurer - and there is your extra insurance cost which they employer should be covering.

I know my employer does not cover it so any using my own vehicle for work is at my own risk.

Nety

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Reply # 581226 14-Feb-2012 09:44

A bit off topic but included in the insurance issue. Check your contents policy as well. If you are traveling with work and for instance take your personal camera with you most contents policy's will not cover the camera if it is lost/broken etc.
Back on topic my point with Wof etc. is that you are claiming per km. Wof costs the same amount if you travel 0km while it is valid or 30,000km. Therefore how can you claim a km cost for it? Same with insurance although I agree if you need to get additional cover or different cover then you should be reimbursed for that however I would see that as being separate to the mileage claim.

dipper

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Reply # 581229 14-Feb-2012 10:12

Hi Nety,

My example is an example only (but is not far off many real world situation that I have helped set up) but all these costs can be re reimbursed under the Income Tax Act as a tax free reimbursement (to the extent that you have incurred these costs for business related work in the first place).

This is a common approach used these days to reimburse shareholders for the use of their cars so as not to attract FBT as a business will not be paying for any private use.

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