Fuel Prices Are on the Rise: What This Means for Your Company
You can’t escape it. The signs are all around you. Literally. Pass any gas station and you’ll see that fuel prices have gone up in the last month, and way up since the past few months. Since September of 2017, actually. This change naturally leads to a few questions that need answers, like:
Why is this happening?
Well, if you’re looking for something to blame for rising gas prices, you can look to the demand trends in the crude oil market. Driving in the United States has increased year over year–724 billion more miles in 2017 than 2016–and with it, the need for more fuel. We aren’t the only ones either. Demand in China is also at an all-time high. There’s a clear need for gas.
Should we be concerned about the supply?
Long story short, no. The U.S. has ramped up its production levels and is on pace to be the highest exporter of oil in the world, putting Russia and Saudi Arabia close behind it. Conservative estimates put the end of oil extraction somewhere around 2036. That leads us to our next question:
How do rising fuel prices impact your vehicle program?
Well, that depends entirely on what type of vehicle program you have. Let’s walk through how it will impact each type of program.
Company Car Program
If your company owns or leases a fleet of vehicles, it just got a little more expensive. Your mobile workforce will still need to drive to their meetings, so there’s no quick solution here. Add the rising rate of depreciation, the cost of repairs, 24/7 liability. Well, maybe this is the perfect time to reconsider your business vehicle program options.
Flat Allowance Program
If your company pays every mobile worker the same amount to drive their personal vehicle for work, this may be tricky. On the one hand, you won’t be shouldering the cost of this increase. On the other hand, your mobile workforce is driving for your business. While this program may be one of the easiest to implement, it’s far from flexible.
One of its biggest issues is its lack of fairness to mobile workers. Even if payments to mobile workers were increased to offset rising fuel costs, the payments remain the same across the company. That means those who drive further or in an area where gas prices are higher than the rest of the country are still disadvantaged. Add the fact that the allowance will be taxed, and you may want to look for a new vehicle program.
Cents-per-mile (CPM) Program
If your company reimburses its mobile workforce by paying them a cents-per-mile rate, you have a few things to consider. Do your mobile workers drive below 5,000 miles each month? Then you may want to consider raising the rate of reimbursement. If you want the reimbursement to remain untaxable it can not be higher than 54.5 cents, as per the current IRS Safe Harbor Rate.
Do your mobile workers drive more than 5,000 miles each month? Then you may already be reimbursing them at the appropriate rate, or even over reimbursing them. Knowing with certainty can be difficult without automated mileage capture. Manual mileage logging can result in inaccurate mileage reporting and maybe even falling out of IRS compliance. These issues can be fixed with mileage capture automation, but, as with flat allowance, inequalities between mobile workers in different geographic regions still exist. With higher gas prices, the ideal program is flexible and fair.
Fixed and Variable Rate (FAVR) Program
If your company reimburses its mobile workforce by reimbursing them for the fixed costs and variable costs of the business use of their vehicle, you’re in a good position. In a program as flexible as FAVR, your company can personalize each reimbursement by employee, adjusting the mileage specific to each mobile worker to ensure they are reimbursed fairly. This is especially important in the current fuel climate. FAVR even takes into account the geographic location of each mobile worker and the price of fuel where they drive.
When will the rise in fuel prices end?
Prices could be as high as $3.00-$3.15 per gallon through the summer, if not longer. The hope is this will drop back down towards the end of summer, so cross your fingers.
If you still have unanswered questions about what the rise in gas prices means for your company, or you just like being as informed as possible, check out the 2018 Motus Fuel Trend Report. The report includes everything you need to know, from data leading up to this rise in price, to the long-term implications of the market forces behind the fuel trend and more!