High Gas Prices Impacting Car Allowances 

It’s impossible to drive without seeing how high gas prices have risen. This change can be tied clearly to Russia invading Ukraine. Even before sanctions, many shipping companies refused to continue doing business with Russian based oil exporters. While the current administration is working on ways to lower the price at the pump and OPEC producers have made it clear they intend to release more oil, the price won’t be dropping to $2.00 a gallon any time soon. What does this mean to companies with car allowance vehicle programs? How are high gas prices impacting them? And what can they do? 

What is a car allowance? 

A car allowance, also referred to as a vehicle allowance, is a vehicle program where companies provide their driving employees with a flat stipend each month. Car allowances are popular because they’re easy to implement. Simply identify the employees with driving responsibilities and provide them with a monthly stipend (the average allowance amount in 2021 was $575). Companies also like car allowances because they’re a consistent payment that’s easy to account for.  

How is a car allowance impacted by high gas prices? 

Companies provide employees with a car allowances to cover business-related driving expenses. However, car allowances are not a flexible vehicle program. If there’s serious disruption in the economy or a hike in gas prices, car allowances lack the ability to react. Here are some specific ways that impacts companies and their driving employees. 

One Size Fits All 

Car allowances may be easily tracked monthly payments, but that doesn’t mean they meet the needs of sellers. In fact, often times, they don’t. Consider two driving employees. One drives around 200 miles each month. The other drives 700 miles each month. Both receive the same stipend. This was an issue before gas prices skyrocketed. Only now, instead of the stipend only covering the driving costs of one employee, it may fail to cover driving costs for either of them.  

Winners and Losers 

Stipends aren’t likely to cover the costs of driving if the employee is a high mileage driver. That issue is compounded by geographic costs. Even low mileage driver in California will struggle to pay for business mileage using only the stipend, while employees driving in states like Mississippi won’t have as much issue. Employees don’t drive the same number of miles, but were they to, there would still be a big difference in prices state by state, even city to city. Rising gas prices only make that worse. 

Another factor here is tax waste. Because car allowances aren’t substantiated, the IRS considers them additional income and therefore taxable. This means that of their $575 stipend, they’ll only receive about $393 of it. So a stipend that was already unlikely to cover many employees’ driving expenses delivers even less. 

What can companies do? 

This is a challenge for too many companies. If a car allowance stipend isn’t working, what will? Businesses may decide to offer a fuel card to their driving employees. However, this is a solution that creates problems. With fuel cards, tracking business and personal use is notoriously difficult to track, so employers end up paying for a lot of extra fuel. Gas expense will explode. Employees often gas up twice a week, using the card for purposes beyond business. Ultimately, it only adds more financial woe and headache than it’s worth.

Employers can also increase the amount of the allowance they offer. But this also exacerbates problems, like tax waste, without solving the root problem. Employees deserve fair and accurate reimbursements wherever they work. Car allowance vehicle programs fall short of delivering that. That’s where the fixed and variable rate (FAVR) reimbursement program comes in. 

FAVR is the Solution 

A FAVR reimbursement accounts for the fixed and variable costs of owning and operating a vehicle. Instead of getting a taxable stipend, drivers receive tax-free reimbursements specific to the costs in the area they work in. The right provider ensures cost components like fuel prices are updated on a regular, weekly cadence. There are further benefits to a FAVR program. 

With the right program, employers can receive greater insights into their driving workforce. This can result in optimized routes, more efficient administration and fewer miles traveled. Companies can also set up policies to ensure field reps meet the standards of the company image. Requirements like proof of insurance can insulate the company from certain legal issues. Companies can also decide on the vehicle type, age and mileage when determining reimbursements. 

Interested in controlling vehicle program costs in a way that benefits driving employees? Learn more about our FAVR offering today! 

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