As you may have seen, there was recently a major gas leak which forced the closure of a crucial pipeline that brings gasoline to the Eastern United States. As CNN reports: “…a section of the Colonial Pipeline, which runs from Houston to New York, has been closed since Sept. 9 after a spill of roughly 250,000 gallons was discovered in rural Shelby County, Ala. The major pipeline, one pipe of which has been severed, provides gasoline for an estimated 50 million people on the East Coast each day…”
Pundits believe that the loss of this pipeline – even temporarily – will cause an increase in gas prices as suppliers scramble to find other ways to get product to the East Coast. In fact, increases have already been seen in some Southern states. One article states that “Georgia saw a rise of 22.5 cents per gallon, Tennessee 13.8 cents, South Carolina 13.0 cents and North Carolina 12.0 cents.” Several states have even declared states of emergency out of concern over potential gasoline supply disruptions.
The question you’re probably asking is: “So, what effect will this have on my business? Sure, no one likes gas price increases,” you say, “but they’re as inevitable as death and taxes.”
While that may be true, gas price fluctuations are of critical importance to companies with employees that drive for work as a regular part of their job description. Whether sales representatives or pizza delivery personnel, if they’re driving for work, you, as the employer, owe them proper, accurate reimbursement for vehicle-related expenses. And gas represents one of the largest daily expenses for these workers.
Why does accuracy matter you ask? “So what if there’s a price surge? There’s usually a drop following it; it’ll even out.”
Your thoughts on international gas policy aside, there’s a couple of reasons why this is critical. First, you may be operating in a state with stringent labor regulations that you must abide by. Take California’s Labor Code section 2802(a) which states that companies must indemnify employees for necessary expenditures directly related to their job duties, for example. If you’re not accurately reimbursing employees for vehicle-related expenses, you could be found in violation of labor laws and fined.
Secondly, you’re opening yourself up to employee lawsuits; one need look no further than the recent Uber, Starbucks and Walgreens lawsuits, to name a few, for examples of where companies have been forced to pay huge settlements or enter into lengthy court cases to defend their reimbursement plans.
But not all reimbursement plans are created equal – and here is where the problem lies. Flat approaches to reimbursing employees, including car allowance plans (which are taxable forms of compensation) and cents-per-mile rates (i.e., the IRS Rate) do not account for the gas price spikes (and falls) that drivers in these states will soon see at the pumps. In fact, the popular IRS rate is not a recommended reimbursement rate at all – its purpose is to serve as the basis for individuals to calculate a tax deduction for their unreimbursed driving expenses. Further, it is only calculated once per year, based on the previous year’s pricing data (e.g. fuel prices).
This creates a myriad of problems – not only may employees be short changed when prices rise (as they are right now), but you instantly open your company to risk of labor law violations and employee lawsuits if you’re not accurately reimbursing them.
The only true way to accurately account for daily fluctuations in fuel prices is to use a FAVR (fixed and variable rate) methodology for calculating reimbursement or fleet personal use chargeback amounts. Fixed costs include expenses that typically stay the same each month – but can vary drastically from employee to employee based on location, such as insurance, license and registration fees, taxes and vehicle depreciation. Variable costs include expenses like gas, oil, maintenance and tire wear, which vary from month to month based on the number of business miles an employee drives and where in the country they live. FAVR reimbursements consider these differences and provide a customized monthly reimbursement or personal use chargeback amount to employees based on their localized costs.
FAVR programs mitigate the risk of violating local and national labor laws – and employees are given the peace-of-mind that calculations are based on current, localized data. By working with Motus, you can be assured that daily fluctuations in fuel prices are accounted for. Be it a broken pipeline or a shipping delay, summer price decreases or winter price increases, with Motus’ FAVR program, you’ll be covered.
Accounting for real-time, localized fuel prices means:
- Drivers are reimbursed based on the fuel prices they actually experience at the pump, day-to-day.
- Companies are safeguarded from legal risk since they’re reimbursing for the prices drivers are currently experiencing and not shortchanging anyone.
Other mileage reimbursement programs in the market rely on fuel price averages and may not reimburse based on individual, driver-level geographic price statistics. If averaging over a time period or broader geographic area, these programs risk not accounting for the real-time fluctuations each individual driver experiences – and ultimately could expose organizations to labor law or lawsuit risks.
While companies who have drivers in areas impacted by the current fuel price increases may end up reimbursing a higher amount in the short-term on a FAVR program, once the pipeline is fixed and prices normalize, reimbursement rates will automatically adjust to reflect these (anticipated) lower fuel prices. Most importantly, by using a FAVR methodology, employers are doing the right thing by ensuring their employees are reimbursed for the prices they’re actually experiencing, while at the same time mitigating risk of violating local and national labor laws.