[Updated] If your company gives a gas card to employees or reimburses their fuel costs, it can be a challenge to control these costs. Paying for employees' fuel typically supplements a car allowance, but it can create some headaches if not managed properly. Here are three strategies to use.
Gas prices and your company fuel card
At the end of 2019 the U.S. Energy Information Administration projected 2020 gas prices to hold steady at around $2.62/gal. Instead, the "oil war" between Russia and Saudi Arabia and reduced demand due to the coronavirus pandemic have kept 2020 gas prices much lower than expected. So for companies that supply a fuel card to employees, 2020 has probably been less costly than usual in terms of gas.
But gas prices are not the only factor when it comes to company fuel costs. Whether your employees drive company cars or personal vehicles, you need to think about how to control fuel costs, and that begins with identifying which cost factors the company can control in the first place. Hint: the price of gas is not one of them.
3 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 fuel consumption of employee vehicles
Employees who drive gas guzzling vehicles like full size SUVs or pick-up trucks will increase your costs significantly. You don’t have control over your employees’ vehicle choices. But a vehicle's fuel efficiency can significantly impact reimbursement amounts. 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 company gas card 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 (more on this below).
Your reporting tool for business/personal mileage
IRS rules require that employees substantiate the business use of fuel, or else you have to treat the fuel card 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 don't, you will find it quite challenging to 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. We recommend using a mileage tracking app that automates the process.
3 tactics to manage fuel card costs
The biggest issue with a gas 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.
- Limit when employees can pump gas or how much they can pump.
Option one: Restrict the days of the week on which employees can fill up their vehicles. For example, if you fill up on a Thursday or Friday, you can’t fill up on a Monday without permission. This will limit the amount of fuel employees consume on weekends or during personal time.
Option two: Restrict fuel to a number of gallons per week. This approach can create challenges if some employees cover larger territories than others. If so, approve some employees for higher amounts of fuel.
Upgrade your mileage log—It’s 2020, 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 tracker 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. Your employees can easily overstate the business mileage to lower their personal fuel costs.
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 both your car allowance and fuel card policy.
Best practice says review your car allowance policy annually and implement new rules and changes. You could start charging employees back for personal use of fuel. This can take the form of actual costs, a cents-per-mile rate, or tax withholding. You can also 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 called a FAVR plan, which could save you 20-30% on vehicle reimbursement costs. Use the calculator below to find out how much, then schedule a call to learn more about how to implement this kind of program.