The phrase, “…nothing can be said to be certain, except death and taxes,” should be amended to include fluctuating fuel prices, which have been a volatile expense since the first Model T rolled off the assembly line.
If you are an owner or high-level decision maker of a business that employs a mobile workforce, keeping tabs on fluctuating fuel prices should be a critical part of your operations strategy – and doing so is becoming increasingly important as a growing number of employees are now tasked with mobile work (42.5 percent globally by 2022).
These workers – including regional sales managers, restaurant delivery drivers, beverage and bottling company distributors, medical device suppliers and more – often travel from client to client throughout the week and incur a wide range of expenses. These costs should be expensed by the company. The current biggest expense? Fuel, accounting for 25.6 percent of the total cost to own and operate a vehicle, according to the 2018 Motus Fuel Trends Report.
Employers must properly reimburse their mobile workers for fuel expenses or risk violation of stringent labor regulations in states like California, New Hampshire and Montana (with others likely to follow). If your company is not 100 percent compliant, it is open to non-compliance penalties and the risk of expensive employee lawsuits. Just see cases like those from Starbucks and Walgreens as examples.
No company wants to knowingly short-change a hard-working and effective employee. However, there is a lot of ambiguity surrounding the types of vehicles mobile workers drive. How can employers be sure that they are providing fair reimbursements to workers that cover the costs of driving for business, including fuel?
When looking at proper reimbursement for mobile employees, there are several vehicle classifications executives should be aware of. Some businesses offer company-provided fleet vehicles to their employees, which frequently involve some kind of specialty or highly-branded logo.
With fleet programs, companies must decide whether their vehicles primarily serve as an employee perk, or whether its main objective is to provide for employees’ business-related transportation needs. If the fleet’s purpose serves the latter, then employers are responsible for paying fuel costs of those vehicles or reimbursing their drivers for the cost to fill up at the pump.
Employee-owned vehicles involve a different set of considerations altogether. While the company isn’t responsible for covering each worker’s total fuel cost, they do need to accurately reimburse employees for the costs associated with the business use of their personal vehicle.
This can get complex. As cars don't print out receipts explaining exactly how much a work-related trip costs, many companies use a cents-per-mile calculation or monthly car allowance to reimburse their mobile workforce. But these approaches reimburse all employees at the same amount and do not account for the gas price spikes and falls that drivers see at the pumps – or the difference between fuel costs across the country.
Additionally, as emerging business models continue to shape what the future of work will look like, new situations arise where an employer’s reimbursement responsibility falls into a grey area. Take for example the proliferation of ride-hailing app services like Uber and Lyft. Are their mobile workers independent contractors or employees? The business models are built on classifying them as the former, however this question has been front-and-center for the industry ever since Uber and Lyft drove onto the scene – thanks to both multi-million-dollar class action lawsuits, and individual driver claims. And the takeaway isn’t exactly cut and dried.
Recently, California’s Supreme Court set stricter standards for companies to label workers as contractors and not employees by adopting the new “ABC” test (similar to Massachussetts’ existing ABC law) in its Dynamex Operations West, Inc. v. Superior Court opinion. Subsequently, as law.com reported, San Francisco City Attorney Dennis Herrera seized on this opportunity to issue subpoenas to Uber and Lyft for records related to whether their mobile workers should be classified as employees or independent contractors.
Technically the decision is explicitly limited to “wages,” and so seemingly does not apply to expense reimbursement payouts like fuel, which are governed by CA Labor Code Section 2802. But how, in practice, can a worker be paid their wage as an employee, while reimbursement is handled as a contractor? And because the “ABC” test now places the burden of establishing whether a worker is an independent contractor or a full-time employee on the employer, the way companies decide to answer this question will undoubtedly be subject to scrutiny over the coming years.
With the ever-evolving complexities surrounding worker classification, as well as the numerous vehicle programs available to companies and their workers, it is vitally important for the C-Suite to understand how to accurately reimburse their mobile workforces for the cost of fuel.
The best way to ensure mobile workers are fairly and accurately reimbursed according to the variances in fuel costs, individual geography and miles driven is to use a fixed and variable rate (FAVR) program.
In addition to being the only reimbursement approach recommended by the Internal Revenue Service (IRS), it’s the only methodology that that can be used to reimburse drivers tax-free for both the fixed and variable costs associated with driving for business. Fixed costs (e.g., insurance, taxes, depreciation) are calculated for each driver based on where they live, while variable costs, such as fluctuating fuel prices, are based on the miles they drive and current prices in an employee’s driving territory.
But it can be complicated for organizations to accurately record all the fixed and variable costs employees incur. After all, tracking and reporting accurate personal and business expenses can create significant administrative burdens for employers and employees. Luckily, this is no longer the case thanks to technology.
Companies can now leverage cutting-edge software and comprehensive vehicle management solutions to track, collect and store all of their employees’ business travel information, including fuel expenses, which can then be reported to the IRS without creating mountains of paperwork. Instead of pen-and-paper mileage logs, employers can use automated tools and mobile apps to track and accurately differentiate their employees’ exact fuel usage and reimburse them accordingly – regardless of the type of vehicle they drive or their worker classification.
While there are many variables factoring into the expense and reimbursement equation, the bottom line is simple – if you have classified employees driving for work, you, as the employer, owe them proper, accurate reimbursement for the cost of fuel. And with today’s technology available to streamline the reimbursement process, employers can confidently navigate fluctuating fuel prices with ease to ensure their mobile workers are paid what they are rightfully owed for filling up at the pump.
Ken Robinson, Market Research Analyst at Motus
Image Credit: Paulbr75 / Pixabay