FAVR (Fixed and Variable Rate Reimbursement)

FAVR stands for Fixed and Variable Rate. It is a hybrid mileage reimbursement model that combines a fixed monthly stipend (covering depreciation, insurance, registration) with a variable per-mile rate (covering gas, oil, maintenance).

Why employers use it

A flat per-mile rate over-pays low-mileage drivers (whose fixed costs are spread thin) and under-pays high-mileage drivers (whose variable costs dominate). FAVR adjusts for both, producing fairer reimbursement for fleets with mixed driving profiles.

IRS treatment

FAVR reimbursement is tax-free to the employee if the plan meets IRS substantiation rules (Section 1.62-2). The fixed portion typically tracks regional cost benchmarks; the variable portion tracks actual fuel/maintenance costs.

Common usage

FAVR is most common at large-fleet employers (medical sales, pharma reps, field service technicians). Small businesses usually stick with the simpler IRS standard rate or a flat car allowance.

Related terms