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- 2015 Fuel Price Report
Many companies rely on national average prices or the IRS mileage rate (based on national average costs) to determine vehicle reimbursements for mobile employees, but this one-size-fits-all approach is inaccurate. Motus fuel price data* reflects that 34 states had a higher fuel price than the national average in 2015, while 14 states fell below (See Figure A). Any organization that uses a national average to reimburse employees is at risk of under or over-paying employees for their actual costs incurred while driving for business (See Figure B). In three states (Alaska, Hawaii, and California), fuel prices averaged over 60 cents more per gallon than the national average, placing drivers in these states at a higher risk of being under-reimbursed.
Figure A: Average Fuel Prices Compared to National Average January – December 2015
A January 2016 news release by Consumer Watchdog reported that Californians paid ten billion dollars more for fuel than the rest of the nation in 2015.(3) Under-reimbursement is a particularly important issue for California, where the workforce is the largest (4) and labor laws are especially stringent. California Labor Code section 2802(a) (5) states that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.”
This protects California employees from assuming costs on behalf of their employers by requiring employers to reimburse for all necessary work-related expenses, including the costs of driving a personal vehicle for work. Employers who fail to adequately reimburse employees expose their organizations to legal risk and oftentimes-significant settlement costs. Recent lawsuits related to under-reimbursed vehicle expenses have resulted in settlements that ranged from one million (6) to seven million (7) dollars, and such lawsuits could become increasingly common if companies continue to reimburse California employees based on national average costs.
Though California has the most stringent labor laws and received the most publicity in 2015 due to skyrocketing fuel prices, employers in other states must be conscious of reimbursement policy as well. The federal Fair Labor Standards Act (FLSA)(8) requires employers to pay their workers minimum wage, net of any expense-deductions for the employer’s benefit. While most employers are aware of minimum wage laws, the tendency to provide inaccurate, flat reimbursement amounts can cause employers to inadvertently violate FLSA regulations.
Employers who fail to meet FLSA laws leave themselves exposed to class action lawsuits, many of which result in multimillion dollar settlements. Domino’s, for example, is currently involved in two class action lawsuits, (9) which allege that employees were effectively paid less than minimum wage due to insufficient mileage reimbursements.
While most organizations wouldn’t intentionally violate the minimum wage law, inaccurately reimbursing mobile workers can lead to miscalculation. To prevent this misstep, companies must regularly evaluate their vehicle reimbursements to ensure that they are compliant and accurate for their mobile workers.
Many companies aggregate average costs across the nation and across a time period to determine flat reimbursement rates for all employees. Because reimbursements are based on national averages, drivers in some states are under-reimbursed, while others are over-reimbursed. At Motus, we use technology to capture actual costs and adjust our fixed and variable rates accordingly – in real-time – ensuring the most accurate reimbursements to mobile employees.
While the discrepancy in fuel prices across the country underscores the need for reimbursements to vary by location, accurate vehicle reimbursements must also be sensitive to changes in costs over time. Figure D uses Motus data to demonstrate how fuel reimbursement rates should fluctuate along with changes in fuel prices each month.
Vehicle programs that rely on national average prices to calculate reimbursement rates are flawed. Drivers have different costs for owning and operating their vehicles depending on where they live. Flat car allowances or cents-per-mile reimbursement rates which are applied to all drivers, regardless of where they live, over-reimburse some and under-reimburse others. Over-reimbursing mobile employees costs organizations millions of dollars each year, while under-reimbursing exposes employers to significant state and federal labor violations and considerable settlement costs.
To provide accurate reimbursements and mitigate aforementioned risk, employers need a program that is dynamic – one that accounts for varying location-based costs and costs that fluctuate over time. With the US mobile worker population expected to reach 105 million by 2020, (10) accuracy has never been more important and inaccuracies never more costly.