If your company pays for employees’ gas, a fuel card can quickly become difficult to manage. Without clear controls, fuel cards may create problems with costs, fairness, and reimbursement, especially when employees use personal vehicles for work. To avoid a fuel card or fuel reimbursement disaster, it’s time to start exploring other options.
Quick Answer: Should Employers Give Employees a Fuel Card?
A fuel card can work when employees drive company-owned vehicles, and the employer has strong controls over business and personal use, reporting, and receipts. However, fuel cards can create cost, fairness, and tax problems when employees use personal vehicles for work.
If employees already receive a car allowance, mileage reimbursement, or another vehicle reimbursement, adding a fuel card may duplicate part of the reimbursement and increase the risk of overpayment. Employers should first review whether their current reimbursement method accurately covers fuel, insurance, maintenance, depreciation, and other business vehicle costs.
High Gas Prices and Company Fuel Cards
Fuel prices can change quickly, which makes fuel cards appealing when employees complain that their vehicle reimbursement is not keeping up with costs. But adding a fuel card does not fix the underlying reimbursement problem.
If employees use personal vehicles for work, fuel is only one part of the total cost of driving. Insurance, maintenance, tires, depreciation, registration, and regional cost differences also matter. A fuel card may help with gas purchases, but it does not determine whether the overall vehicle reimbursement program is fair, accurate, or tax-efficient.
Fuel Cards and Employee Gas Reimbursement
Corporate vehicle reimbursement programs take many forms: a car allowance, a mileage rate, a gas card/fuel reimbursement, or some combination. If an organization supplies a company vehicle, they often just issue a fuel card. But if your company pays a car allowance or mileage rate for the use of personal vehicles, adding a fuel card or reimbursement into the mix can create costly complications.
Organizations often add a fuel card when complaints arise that the car allowance or mileage reimbursement is not fully covering vehicle expenses. But this is not a good solution. There are much more cost-effective solutions available.
5 reasons to rethink paying for employees' gas
Here are five reasons employers should rethink fuel cards when employees drive personal vehicles for work.
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You can’t control costs with a gas card.
It is very difficult to track the amount of fuel used for business vs. personal use. Your costs are based on four variables that are often outside your control:
- Employee vehicle types – If they drive gas guzzlers, it’s going to cost you.
- Employee reporting of personal vs. business use – Is it honest and accurate?
- Company mileage log – If you rely on self-reporting, you can’t control costs.
- Company fuel policy – Do you have effective limits on gas consumption?
Seriously – how are you going to measure the amount of business-related fuel consumed on a daily, weekly, or monthly basis? If you issue a fuel card, it’s important to have a robust policy governing fuel use, but that requires significant oversight and strong enforcement from management.
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Paying for gas means overpaying employees.
Fuel cards can create over-reimbursement when fuel is paid separately on top of a car allowance or mileage reimbursement. If the existing reimbursement already accounts for fuel, paying for gas again can duplicate part of the employee’s vehicle reimbursement.
Over-reimbursement risk can also vary by employee. A low-mileage driver, a high-mileage driver, a fuel-efficient driver, and an employee in a higher-cost region may all experience different results. The better solution is usually to evaluate the full vehicle reimbursement program rather than add a fuel card as a separate fix.
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Fuel cards can create fairness issues
Employees drive different vehicles with different fuel efficiency levels. A driver with a fuel-efficient vehicle may use far less fuel than a driver with a larger vehicle, even if both employees perform similar business roles.
If the company pays for fuel directly, the larger fuel benefit may go to the employee with the less efficient vehicle, not necessarily to the employee with the greater business need. That can create fairness concerns and make the policy harder to explain.
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A Fuel Card Can Hide Existing Policy Problems
Many companies consider fuel cards when employees say their car allowance or mileage reimbursement is not covering costs. But the better first step is to identify why the current program is falling short.
If the company pays a taxable car allowance, the tax withholding may reduce the employee’s take-home pay. If the company uses mileage reimbursement, the rate may overpay or underpay employees depending on mileage level, location, and vehicle costs.
Adding a fuel card may make employees feel temporarily better, but it can also make the reimbursement program more expensive and harder to manage. Employers should review whether a mileage reimbursement, accountable allowance, or FAVR program would solve the issue more directly.
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Providing a gas card for employees is easy; taking it away is HARD.
Once you provide a gas reimbursement or fuel card, it is difficult to recover from the over-reimbursement effect. You can take various measures to rein in costs, such as using an automatic mileage tracker, limiting monthly fuel consumption, or allowing employees to fill up only on certain days of the week. But none of these methods can solve the fundamental problem of overpayment.
Overpayment results from the inherent inequities of traditional vehicle reimbursement programs like car allowances and mileage rates and only worsens with the addition of a fuel card.
How to Solve Fuel Card Problems
The best solution is usually to fix the vehicle reimbursement program before adding another payment method. Employers should review whether fuel is already included in the car allowance, mileage rate, or reimbursement plan, then determine whether the current program accurately reflects employee mileage, vehicle costs, location, and documentation.
If fuel cards are already in place, the transition should be handled carefully. Employees may view the fuel card as part of their compensation, so employers should explain why the policy is changing and what reimbursement method will replace it.
Not sure whether your fuel card is creating overpayment, tax waste, or reimbursement gaps? mBurse can help you compare your current program against mileage reimbursement, accountable allowance, and FAVR options.
FAQs About Fuel Cards for Employees
Should employers give employees a fuel card?
A fuel card can work when employees drive company-owned vehicles, and the employer has clear controls for business use, personal use, receipts, and reporting. However, fuel cards can create cost, fairness, and tax issues when employees use personal vehicles for work and already receive a car allowance, mileage reimbursement, or another vehicle reimbursement payment.
What is the problem with giving employees a fuel card?
The main problem is that fuel cards can make it difficult to separate business fuel use from personal fuel use. They can also duplicate reimbursement if fuel is already included in a mileage rate, car allowance, or reimbursement plan.
Can a fuel card lead to over-reimbursement?
Yes. A fuel card can lead to over-reimbursement when the company pays for gas separately while also paying a car allowance or mileage reimbursement that already accounts for fuel. In that case, the employer may be paying for the same vehicle cost twice.
Are fuel cards fair for employees?
Fuel cards can create fairness issues because employees drive vehicles with varying fuel efficiencies. An employee with a larger, less fuel-efficient vehicle may receive a larger fuel benefit than an employee with a fuel-efficient vehicle, even if both employees have similar business driving needs.
Is a fuel card better than mileage reimbursement?
A fuel card is not always better than mileage reimbursement. Fuel cards may work better for company-owned vehicles, while mileage reimbursement is often a better fit when employees use personal vehicles for business. Mileage reimbursement can account for business miles driven and may be easier to document under an accountable plan.
What should employers use instead of a fuel card?
Employers can consider mileage reimbursement, an accountable allowance, or FAVR reimbursement. The best option depends on employee mileage, vehicle costs, location, documentation needs, and whether the company wants a more accurate and tax-efficient reimbursement program.