If your company gives a gas card to employees or reimburses their fuel costs, it can be a challenge to control these costs. Here are three strategies to reduce costs by increasing fuel use visibility.
Gas prices and your company fuel card
After the volatility of 2022, gas prices stabilized in 2023 in the $3 to $4 per gallon range. In some parts of California, drivers are paying around $5 per gallon. With inflation affecting nearly every other aspect of vehicle costs, employers may seek to alleviate financial pressures by adding a fuel card or fuel reimbursement to an existing car allowance policy.
Paying for fuel can add costs that go way beyond the cost of filling the tank. 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.
3 factors that determine fuel card costs
Providing a fuel card or fuel reimbursement along with a car allowance for personal vehicles leaves you with less control 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 will affect reimbursement amounts. Plus, employees often see a gray area between business use and personal use, further inflating costs to the organization.
Your written and enforced 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. If your organization uses 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 by an audit.
The biggest issue with a gas card is the gray area between personal fuel and business fuel. The key is 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 purchase fuel. 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.
Best practice is to require employees to take pictures of the odometer after each fill-up. If this is not possible, have them send the odometer reading using a spreadsheet, and once semi-annually, have them take a picture of their odometer.
Reduce fuel costs with automated mileage tracking.
Adopt a mileage tracking app that’s accurate, user-friendly, and holds employees accountable. If your employees are self-reporting mileage, they can easily overstate the business mileage to lower their personal fuel costs. Automating the process also reduces redundant administrative work.
A good mileage tracker will capture and calculate mileage automatically using GPS. A good mileage tracker will also allow the flexibility to take pictures of the odometer to provide oversight of business travel and fill-ups.
Update both your car allowance and fuel card policy.
Best practice says review your car allowance policy annually and implement new rules and changes. For example, you can charge 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 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 organization with a geographically cost-sensitive reimbursement rate that tracks short-term inflation and volatile fuel costs. Adopting a non-taxable plan 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.