If your company pays for its employees’ gas, you’ve bought yourself a costly problem. To avoid a fuel card or fuel reimbursement disaster, it’s time to start exploring other options.
Last year, we saw gas prices spike to historic highs, hitting an average of around $5/gallon nationwide. In 2023, though prices have moderated, they remain relatively high, averaging around $3.50/gallon. With inflation at a twenty-year high, everyone is experiencing higher costs in their daily lives.
If you have employees who drive a personal vehicle for work, you probably heard at some point in the last year requests for a company fuel card to help offset these rising costs. If you already offer a fuel card, you probably know how costly it can be, especially when prices spike. In an inflationary economy, employees may be even more prone than usual to squeeze out some personal use from company-subsidized fuel.
This situation requires a review of company vehicle policies and consideration of how to help employees make ends meet without adopting a program that is prohibitively expensive.
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, then they often just issue a fuel card by itself. 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.
Here are five reasons why you should rethink paying for gas when an employee drives a personal vehicle for work.
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:
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.
Gas guzzlers and personal use of fuel are both huge contributors to overpayment. But they aren’t the only ways to overpay.
If you pay a monthly car allowance, a low-mileage driver in a less expensive part of the country may be getting overcompensated with that gas card. Similarly, a high-mileage driver receiving a mileage reimbursement may experience a significant surplus when the company pays directly for gas.
Different employees experience different expenses based on miles driven, type of vehicle, and where they live. If you have employees working in different parts of the country, paying for their fuel will certainly mean over-reimbursing some employees for whom the existing car allowance or mileage rate is already sufficient.
Rather than overpaying via a gas card, it makes more sense to optimize the company vehicle reimbursement amount in the first place so that it covers all employees’ expenses. (We can help you pinpoint that optimal rate – for free. Select the button below.)
Your employees drive different vehicles based on personal choice and lifestyle. One might drive a Toyota Prius to save money or for environmental reasons while another drives a large SUV because they like to hunt or fish on the weekends and need to tow a boat. Look at the difference:
| Fuel Efficient Vehicle | $200/month costs |
| Big SUV | $590/month costs |
People value equitable treatment. But how is it equitable for the employee with the SUV to get a much larger benefit than the person with the smaller car based just on gas consumption?
What is your plan if two employees have a conversation about their gas costs and reimbursements and there is a large variance? You will be forced to explain or address the inequity.
Many organizations start paying for fuel when they receive complaints that the car allowance or mileage rate isn’t covering costs. But instead of adding a gas card, an organization should first eliminate existing causes of insufficient reimbursement.
In the case of a monthly car allowance, tax waste often eats up 30-40% of an employee’s monthly car allowance. Switching to a non-taxable plan is more cost-effective than adding a gas card.
In the case of mileage reimbursement, serious inequities arise based on miles driven. Below a certain number of miles, the mileage rate does not compensate for sizable fixed expenses (such as depreciation or car insurance). High-mileage drivers, on the other hand, often experience over-reimbursement. Adding fuel to the mix may even up the low-mileage driver but significantly overpay the high-mileage driver.
Rather than paying for fuel, choose the most appropriate vehicle reimbursement method for your company and its employees.
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, like using an automatic mileage tracker, limiting the monthly fuel consumption amount, or only allowing employees to fill up 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.
It will prove far more cost-effective in the long run to fix the vehicle reimbursement program than to add or continue a fuel card or fuel reimbursement program.
But if you already are providing a company gas card, that leaves you with a difficult problem: Once employees get used to being overpaid, they won’t like seeing a reduction in benefits.
You will need a professional solution to manage the blowback. You will need to put a new program in place that makes sense to everyone and offers something in return.
Contact mBurse today to find solutions to your vehicle reimbursement challenges.