In a time of inflation, a taxable car allowance often falls short of employees' vehicle reimbursement needs. Some businesses add a fuel reimbursement. But without proper management, a fuel policy can get very expensive.
What is driving your fuel reimbursement costs?
Controlling fuel reimbursement costs starts with understanding which cost factors lie within your organization's control.
Employee vehicle choice
Frequency of fuel purchases
Personal use policy
The first two factors do not fall under an employer's control. The rise and fall of prices at the pump will produce similar fluctuations in your fuel reimbursement costs. And unless your employees drive a company-issued vehicle, then you are at the mercy of employee vehicle choice, which may include gas-guzzling SUVs and pickup trucks.
But frequency of purchases and the cost of personal use can both be controlled. The following five tips for reining in fuel reimbursement costs are all related to policy procedures and policy enforcement.
5 Tips for Controlling Fuel Reimbursement Costs
Here are five tips for reducing your costs by improving your visibility into employees' purchase and use of fuel:
1. Adopt an IRS-compliant personal use chargeback policy.
The IRS requires employees to substantiate the business use of fuel, or else all payments for fuel are considered taxable. If your organization requires employees to log dates, times, destinations, and distances, you are compliant. This measure of accountability both eliminates tax waste and protects your organization from surprise costs during an audit. Supporting your personal use chargeback policy will help control your costs while providing visibility into your mileage and expenses.
2. Require mileage and odometer readings for fuel fill-ups.
Adding to your fuel reimbursement policy a requirement to upload pictures of odometer readings for fill-ups will ensure employees are accountable for reporting their fuel and business mileage usage. This practice will help keep you compliant with the IRS while providing further visibility into your mileage and expenses. If this is not possible, have employees record the odometer reading using a spreadsheet, and have them take a picture of their odometer every six months to verify accuracy.
3. Limit fuel reimbursement costs by limiting fill-ups.
You can also manage fuel consumption by limiting fuel fill-ups based on the work week. A good policy will encourage work week fill-ups like on Mondays or Thursdays and prohibit weekend fill-ups. A weekend fill-up would require permission or a note of explanation. We also recommend limiting frequency to every 4-5 business days. Again, an exception would require permission or a note of explanation.
4. Automate mileage reporting for fuel reimbursements.
Incorporating a mileage app to help with mileage tracking automation will provide additional oversight into fuel reimbursement misuse or even abuse. An automated mileage tracker uses GPS to verify the business mileage associated with the fuel use. Personal mileage can also be tracked, allowing for chargebacks to occur. Many mileage apps will also support pictures of the odometer readings. This tool will help with IRS compliance in the event of a Travel and Expense audit.
5. Revisit your policy of reimbursing for fuel.
You have other options to provide tax-free vehicle reimbursements that are geographically cost-sensitive and reimburse for more than fuel. Remember, fuel can represent a considerable amount of the costs to operate a vehicle, but there are other costs to consider, like insurance and depreciation. Often these two categories alone can account for 60% or more of vehicle costs. Furthermore, switching from a taxable car allowance to a non-taxable plan will reduce costs by eliminating tax waste.
Implementing one or all of these pro tips will help reduce your costs, improve your visibility of expenses, and provide fair reimbursement for your employees.