Thinking about adding a fuel card or fuel reimbursement to your car allowance? in times of high gas prices, this is a common consideration. Here’s what you need to know.
When gas prices rise quickly, complaints about company car allowances rise as well. When an employee's compensation does not keep up with costs, that employee will understandably experience frustration.
With gas prices in 2022 at record levels, many organizations are facing this exact problem. Some have added a credit card for fuel or a fuel reimbursement to offset the gas price increase. Others have bumped up the car allowance.
This guide covers the following three cost considerations when paying for employees' business use of fuel:
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.
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.
The company costs from a fuel card or reimbursement are based on three factors:
These factors should not be overlooked. Below we’ll consider each factor and how it can contribute to company costs.
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 lately, 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.
The way your organization logs business mileage will impact the cost of employee fuel. A company mileage log should fulfill two requirements:
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. This can prove especially difficult if an employee has left the organization. And spreadsheets are also not always accurate because of the gap between trips and entering of mileage.
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.
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.