Gas prices are on the rise again, with no end in sight. The summer driving season is upon us, and prices have risen to 2014 levels with the potential to rise higher. The current crude oil price of $71.49 already has exceeded the EIA forecast of $63, and OPEC and Russia have agreed to extend oil supply cuts through the end of 2018.
If your organization provides a fuel card or pays a fuel reimbursement to your employees, your costs are going to rise. Whether your employees drive company cars or personal vehicles, you need to think about how to control these rising fuel costs. Controlling costs starts with understanding which cost factors the company can control in the first place.
Three factors that determine your company’s fuel costs
Providing a fuel card or reimbursement along with a car allowance for personal vehicles leaves you with a lot less control over the situation than if you provide a company car. The costs are based on three variables:
- The type of vehicle your employees drive
Employees who drive gas guzzling vehicles like full size SUVs or pick-up trucks will increase your costs significantly. You don’t have any control over your employees’ vehicle choices. Plus, because employees often see a large gray area between business use and personal use, you may be subsidizing the personal use of fuel.
- The effectiveness of your policy
How well-written and enforced is your fuel policy? Does your company restrict fuel-ups to particular days or amounts per month? Fuel-up times and amounts are within your control. It’s all a matter of enforcement.
- Your reporting tool for business/personal mileage
IRS rules require that employees substantiate the business use of the fuel card or reimbursement, or else you have to treat it as taxable compensation. As the custodian of record, your company must keep a record of this mileage. If you use a mileage log to capture dates, times, destinations, and distances, you are compliant. If you do not use a mileage log, you will find it quite challenging to forensically piece together mileage over previous years if required.
Be aware that, if you rely on employees to fill out a self-reported mileage log like an Excel spreadsheet, you have provided employees with a blank check for fuel each month. The type of mileage log you use is within your control and can have a major impact on your costs.
Three tactics to manage fuel costs
The biggest issue with a fuel card is the large gray area between personal fuel and business fuel. The key is to find ways to limit as much as possible the amount of personal fuel use that the company pays for. Here’s how.
1. Limit when employees can pump gas or how much they can pump.
One option: Restrict fuel to a number of gallons of fuel per week. (Note: This approach can create challenges if some employees cover larger territories than others.)
Another option: Restrict the days of the week on which employees can fill up their vehicles. For example, if you fill up on Thursday or a Friday, you can’t fill up on a Monday without permission. This will limit the amount of fuel employees consume on the weekends or during personal time if they are not working.
- Upgrade your mileage log—It’s 2018, not 1990.
First of all, if your employees are not using a mileage log, there is no way to substantiate business use, and the fuel card should be taxed as compensation. The IRS requires this.
But if you are using a mileage log, you need to make sure you’re using a 21st-century mileage log that’s accurate, user-friendly, and holds employees accountable. If your employees are self-reporting mileage on a spreadsheet, you are using an ineffective mileage log. There is a high probability that your employees are overstating the business mileage to lower their personal costs and to use more fuel for personal driving.
An effective mileage log will capture and calculate mileage automatically using either Google Maps or GPS. This is the only way you can tell when trips actually occurred and how many miles were traveled. Several mobile apps exist that do just this. However, some associate GPS with Big Brother, so you need to make sure that the mileage log you choose protects employees’ privacy.
- Update your car allowance and fuel policy.
Best practice says review your car allowance policy annually and implement new rules and changes. We’re almost halfway through 2018, but now’s a great time to re-evaluate your policies. As an alternative to fuel-saving policies, you could start charging employees back for personal use of fuel. This can be in the form of actual costs, a cents-per-mile rate, or taxation. You can also start to spot audit employees’ fuel consumption against their productivity on the road.
But if you’re open to a more radical approach, consider eliminating the fuel program entirely. How? By removing the tax waste (Federal, State, and FICA/Medicare) from your current car allowance. By switching to a non-taxable allowance, you will provide an instant 28-33% increase to employees, likely enough to cover their fuel costs and eliminate the need to provide a fuel card or reimbursement.
We can provide your company with fair and flexible options for reimbursing employee vehicle expenses. You can keep your fuel card if you want and try using our mileage log app to control your costs. Or we can give you guidance with developing a new, non-taxable and fuel-free policy.