There are different ways to offset business driving expenses, and using company gas cards for employees is one of them.
This method is gaining traction as gas prices are hitting an all-time high, having surpassed the $5 per gallon mark for the first time since 2000.
However, although employees prefer having a corporate gas card to cover all their business-related car expenses, this isn't always the best solution for companies.
Let's explore how company gas cards for employees work, their pros and cons, and how to best protect your organization from fraud or misuse while ensuring your employees are properly reimbursed.
How Do Company Fuel Cards Work for Employees?
Company gas cards for employees operate similarly to any regular payment card. They're connected to the company's bank account and allow employees to pay for gas and other business driving expenses at specific, approved locations.
When an employee purchases gas or vignettes or pays tolls using a company gas card, these expenses are immediately charged to the card. This means you can control how much your employees spend on gas and other card expenses.
All this makes gas credit cards for business uses a good choice for companies whose employees regularly use vehicles for business purposes, such as home care agencies, construction companies, or general contractors.
Some gas credit cards for business come with a small monthly fee, so factor this in when deciding whether you should get one for your company.
Unlike regular credit or debit cards, company gas cards for employees have certain perks and advantages.
What Are the Benefits of a Gas Card?
There are several pros to implementing company gas cards for employees besides their obvious convenience.
Discounts and Rewards
Businesses that regularly use a dedicated fuel card can save with every fill-up since these company gas cards for employees usually offer so-called wholesale pricing. In other words, frequent users get a discount on large purchases.
The amount you can save depends on the card company you use and the fuel type, but the cash back on gas can go up to 4%.
Remember that these deals usually include cashback on travel categories such as hotel accommodation, restaurants, or car maintenance.
Some of the most popular gas card issuers are Bank of America, Shell, Capital One, American Express, and US Bank.
Online Purchase Tracking
Apart from its ability to track every purchase online, company gas cards for employees come with an additional layer of control - a spending limit.
Depending on the card type, you can set limits for the amount of gas purchased per every transaction or on a daily or weekly level, thus allowing you to manage expenses and minimize fraud.
You can also restrict the use of gas credit cards to purchasing only gas and not permit using them in gas station convenience stores.
Ease of Use
A corporate gas card is easy to use, and that's one of the reasons why both employers and employees like this reimbursement option.
It's used the same way as a regular credit or charge card - employees simply swipe it at the gas station and enter the data you provided, such as the trip or driver number.
Fair Business Driving Expenses Compensation
We've already mentioned soaring gas prices over the past few months, and that's a big issue not only when it comes to increasing business expenses but also for employees who are left undercompensated.
Namely, employees who are compensated using a standard car allowance or a mileage reimbursement rate method will see their cost-per-mile when driving for business purposes increase. At the same time, they will keep on receiving the same stipend, which will eat into their personal means.
As gas prices continue to grow, this gap will only become wider.
From this perspective, company gas cards for employees are a great way to prevent this issue.
Doing so can complicate things and create a new problem, but this time for yourself.
What Are the Downsides of Company Gas Cards for Employees?
Even though company gas cards for employees give you a certain level of control, it leaves much to be desired in this department.
Here's why you should think twice before handing your employees a fuel card for business purposes.
Fuel Economy Heavily Affects the Costs of a Corporate Gas Card
It's much easier to control the costs of your company gas cards for employees in case you provide company cars.
You can select cars for your company fleet by opting for the models with the best fuel economy. This way, you can manage costs and plan your budget accordingly.
However, it's an entirely different situation with personal cars.
You don't have a say when it comes to your employees' choice of personal vehicles. So, the odds are that some drive gas-guzzling SUVs, significantly increasing fuel expenses.
Plus, you'll partially sponsor their extravagant drives instead of incentivizing the use of fuel-efficient cars for work.
Lack of Transparency Over the Personal Use of Fuel
If your employees drive personal cars for business purposes, you can't be sure whether they are committing expense reimbursement fraud.
Can you be sure your employees are being honest about their fuel consumption?
Their reports can be accidentally or deliberately inaccurate. If that's so, you'll end up paying more than they spend for business purposes.
For example, they can run personal errands, pick up their kids from school, or take shopping trips using the fuel you're paying for via company gas cards for employees.
Inflating numbers by a few miles add up, and within the course of a year, you'll pay significantly more than you should on account of car expenses.
It's Not Fair to All Employees
Let's say one of your employees drives a Toyota Prius, a hybrid that can reach up to 50 mpg on highways, while another opted for a BMW SQ5, an SUV whose mpg score is 24.6.
It's easy to calculate that the BMW driver's reimbursement will be twice as high as that of the Toyota owner.
It's not fair, and the employee who's compensated less for the same mileage can be under the impression that they don't get the same treatment as their SUV-driving co-worker. Not to mention that this raises the question of double standards regarding fuel efficiency.
Many employers switch to company gas cards for employees because the standard car allowance and mileage rate don't cover all driving expenses.
Here's a recap of these two expense reimbursement methods:
- A standard car allowance is a flat-rate amount of money employees receive monthly for their business driving expenses. It's pretty convenient and doesn't require crunching numbers. But, since it's taxable, employees will have to give 30% to 40% of the sum they receive to the IRS.
- Mileage reimbursement is a monthly payment that consists of mileage multiplied by the standard IRS rate. It requires accurate mileage tracking and evidence that employees are compensated for business miles only. The IRS increased its standard rates as of July 1, 2022, to compensate for an increase in gas prices. Now employers can offset 62.5 cents per mile driven for business purposes. This is 4 cents more than in the previous six months.
However, you should remember that company gas cards for employees are taxable unless your employees can prove that the gas purchased with the card was used for business driving only.
This can be challenging since we're talking about personal cars and a certain amount of that gas can accidentally be used for private purposes. This will automatically make you ineligible to claim a mileage deduction.
What Are the Company Gas Card Best Practices?
Since all the methods we discussed above, including company gas cards for employees, have some downsides, let's explore your best options. Of course, we'll take both your and your employees' best interests into account.
Introduce a Fuel Use Policy
If you plan on using company gas cards for employees, it's crucial to have a fuel use policy in place.
Strict rules will allow you to control your expenses better and hold your employees accountable.
For example, you can place a cap regarding how many times a week and even determine the exact days they can fill up. It's best to allow either Friday or Monday fill-ups to discourage your employees from using the company-paid gas over the weekend.
Another tactic is to compare your employees' mileage, fuel economy, and overall performance on the road. This way, you'll be able to establish whether they're using more gas than they should. If you notice discrepancies, ask your employees to pay you back for the gas they used for personal driving.
Switch to the FAVR Reimbursement Plan
Fixed and variable rate reimbursement (FAVR) is another non-taxable method. Still, it's more complex than the standard allowance, mileage reimbursement, or company gas cards for employees.
That's why employers aren't very fond of it, although its benefits are worth every effort.
The FAVR method consists of
- The fixed monthly amount that is used for covering expenses such as insurance, registration, or deprecation
- The variable part is used for covering gas, oil, tires, and regular maintenance.
Both payments are non-taxable if you can prove that the expenses are incurred during the business use of a vehicle.
Instead of reimbursing employees based on their fuel economy, FAVR starts by choosing a standard vehicle that will be used for calculating reimbursement rates. The vehicle is selected taking into account what employees need to perform their jobs and not what they actually drive.
Another factor that FAVR takes into consideration when determining reimbursement rates is your employees' ZIP codes.
Such an approach ensures that every employee is fairly reimbursed.
Implement a Mileage Tracking App
Regardless of the reimbursement method you choose, you should start using an accurate mileage tracking app.
Timeero comes with different features that make mileage tracking easy.
First of all, it ensures IRS compliance since the agency requires all mileage logs to have the following elements:
- Date of travel
- Travel destination(s)
- Purpose of your trip.
If you can't substantiate any of these elements, you won't be able to claim a tax write-off.
Also, the IRS wants to have insight into the total miles you drove for business, commuting, and personal purposes over the year.
Since Timeero combines GPS, time, and mileage-tracking technologies, it will capture all the details so that you can substantiate your deduction claims.
Besides allowing you to check your employees' location anytime, you can also control their traveling speed in real time.
Thanks to the breadcrumb trail functionality, you can even replay the route they took and see where exactly they traveled or made stops. This means the app will show if they made a detour or took a longer route which will increase your expenses or reimbursement costs.
Every log entry includes a timestamp so that all mileage reports are IRS compliant and can be used as evidence in case of an audit.
So, if you decide to use company gas cards for employees, you can still claim a mileage deduction if you implement a mileage tracking app and prove that your employees used the gas for business purposes only.
Should I Get a Fuel Card for My Business?
Company gas cards for employees are user-friendly and don't require too much admin work. However, it's not you who control gas expenses but your employees, which makes a corporate gas card a less desirable option.
Implementing a reliable mileage tracker, such as Timeero, can fix this and add a layer of transparency and accuracy to this method, thus making it non-taxable.