Three Things about Fuel Cards and Reimbursements You Need to Know

Written by mBurse Team Member   |   Jul 16, 2024 7:00:00 AM
2 min read

Thinking about adding a fuel card or fuel reimbursement to your car allowance? Here’s what you need to know.

Three things to know about company fuel cards

In previous posts, we have considered the IRS rules governing fuel cards and have proposed rethinking fuel card programs. But if your business believes that fuel cards would be the best choice, this guide is for you.

This guide covers the following three cost considerations when paying for employees' business use of fuel:

  1. Subsidizing costs driven by employee vehicle choices.
  2. Dealing with IRS rules for fuel cards and reimbursements.
  3. Crafting and managing an effective fuel use policy.

Adding a fuel card to a company car allowance

Most organizations whose employees require a vehicle to perform their job also cover the fuel costs of those employees. This may be indirectly through a car allowance or mileage reimbursement or directly through a gas card or fuel reimbursement program.

If your organization is considering adding a fuel card or has recently added one, make sure you understand how the program will work and how much it will cost in the long run. It may be better to invest resources in optimizing the company car allowance rather than adding payments for fuel.

Calculate your optimal 2024 car allowance (free)

How does a company fuel card/reimbursement work?

In most cases, employees receive a credit card to buy fuel or are reimbursed for receipts. While convenient to employees, these programs can be costly if not managed properly. This is why many organizations add stipulations limiting the frequency with which employees may use the card or the number of gallons per month they will reimburse.

Fuel cards are primarily used for company cars. A company fleet is typically comprised of business vehicles of reasonable and economical size, allowing the company to manage costs and budget accurately. Fuel cards are a natural fit because the organization provides the car and covers all costs.

With a personal vehicle, however, fuel costs can be more difficult to manage. Providing a fuel card or reimbursement is typically the go-to solution when employees work in areas with high gas prices, cover broad territories, or both. Adding a fuel card or reimbursement is a big decision: it involves cost, convenience, and administrative responsibilities for your organization and employees.

How much does a company fuel card cost? 

The company costs from a fuel card or reimbursement are based on three factors:

  1. The gas mileage of employees’ personal vehicles
  2. Reporting of business mileage
  3. How proactive a company policy is

These factors should not be overlooked. Below we’ll consider each factor and how it can contribute to company costs.

1. Employee gas mileage and fuel cards/reimbursements

Your employees drive vehicles that make sense for their lifestyle and preferences. If they enjoy hunting or camping they might purchase large SUVs or pickup trucks to tow fifth-wheel campers for weekend and vacation trips. In fact, sales of full-size pickups have been booming, more than doubling over the past decade.

Many mobile employees will use these same vehicles for business. The vehicles employees drive may be more than what they need to do their jobs. If a sales rep only needs a midsize vehicle to get the job done yet drives an SUV with a V8 engine, you are going to end up subsidizing extra fuel costs with the fuel card or reimbursement.

2. Mileage reporting for fuel cards/ reimbursements

The way your organization logs business mileage will impact the cost of employee fuel. A company mileage log should fulfill two requirements:

  • Provide IRS-compliant reporting
  • Manage company costs 

An IRS-compliant mileage log is the best way to ensure an easy, error- and penalty-free audit. You can use mileage log substitutes, such as call logs and calendar appointments, but it takes substantial time and forensic work to calculate accurate mileage and satisfy IRS requirements. The best solution automates the process while delivering accurate mileage reports.

Mileage tracking guide

An appropriate mileage log should track business mileage in real-time for the highest accuracy. A mileage tracking app is best practice to help control fuel card costs, while providing visibility into business vs. personal use. Using the business mileage, you can measure territory size, activity, and even the fuel economy of your employees’ vehicles. This information can be used to develop a fuel policy and can prove to be more useful than simply tracking the number of gallons and cost for each month.

3. An effective company fuel purchase and use policy

Your fuel card or reimbursement policy will also steer and help control costs. Policies should treat everyone equitably while helping control administrative work and costs. These policies may take the form of placing a cap on the number of times a week a mobile employee can fill up. Organizations may also implement a policy of limiting the days of the week when a fill up may occur. For example, you can limit employees to either Friday or Monday fill-ups, but not both. This will curb the amount of weekend driving.

If you’re going to provide a car allowance and fuel card or fuel reimbursement with personal vehicles, it pays to take proactive steps to find tools that can assist you in managing your fuel costs. It can also be worth it to consider adopting a policy that can replace your fuel card while still providing a robust benefit to mobile employees.

Based on IRS rules, fuel that is used for personal purposes should be taxed. Alternatively, you can charge back employees for the personal use of fuel. So it pays to prevent personal use of fuel in the first place.

To learn more about alternative approaches to adding a fuel card or fuel reimbursement to an existing car allowance, click here.

The ultimate guide to paying a car allowance or mileage reimbursement

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