Does Mileage Reimbursement Include Gas? It Depends.

Mobile employees love receiving reimbursement for their work-related travel. After all, people who use their personal vehicles for their job appreciate being seen, appreciated and compensated by their employer for doing so. However, it’s up to employers to explain what this reimbursement actually covers. For example, many wonder: ‘does mileage reimbursement include gas?’ as there’s often some ambiguity surrounding this topic.

Gas costs are a significant concern for employees, since this is the cost they incur frequently and regularly (whereas other car expenses tend to come up either annually or sporadically). In this article, we’ll cover different methods of calculating mileage reimbursement, how they’re impacted by fuel prices, and the importance of clear policies and communication to maintain an equitable and transparent environment within your organization.

Does Mileage Reimbursement Include Gas? Understanding the Basics

So…does mileage reimbursement include gas prices? To answer that question, you’d first be better served determining how mileage reimbursement is calculated for your employees. For most businesses, reimbursement is based on one of two methods: The actual expenses rate, or by using a mileage rate, such as the one set by the IRS every year. First, let’s look at reimbursement using the mileage rate method.

The Relationship Between Mileage Rates and Gas Prices

When the IRS calculates the annual standard mileage rate every year, they do so by looking at a range of costs, including fuel prices, with the numbers they use being expected national averages for the coming year. So if you’re wondering ‘Does mileage reimbursement include oil prices when using the standard mileage rate?’ the answer is…in a roundabout way, yes.

While the IRS’s standard mileage rate offers a simplified and inclusive approach to mileage reimbursement, it does come with some caveats. The most glaring is that the standard mileage rate is based on national average costs, but costs vary by a wide amount across the country – is it fair to pay employees driving for work in California at the same rate as employees driving in Texas? Costs also vary a lot in a twelve month period, with the most expensive time being during the summer months. Unexpected world events, like the global pandemic, or Russia invading Ukraine, can also throw off projected costs.

In a year where gas prices have been exceeding the projected national average, some mobile employees who have to travel extensively in their personal vehicles for work may feel that reimbursement payments at the standard IRS rate aren’t enough to actually cover employees’ vehicle costs. This kind of employee dissatisfaction could lead to employees padding their mileage amounts in their reimbursement claims, in order to receive a payment they feel is more in line with fuel prices.

Sometimes, if gas prices deviate from what was projected to an extreme degree, the IRS will even amend their rate midyear to make sure it aligns with gas price increases. Other times, it may be up to your business to determine whether fuel price increases should merit actions such as increasing the company’s mileage rate, or maybe including a seasonal fuel stipend.

But if your organization opts not to use a mileage rate for reimbursement…

There’s Always the Actual Expenses Method

For any employees wondering, does mileage reimbursement include gas, the actual expenses method offers clarity. In this approach, employees tally up costs from operating their personal vehicle for work, then multiply that amount by the percentage of the vehicle’s business use. While technically a perfectly acceptable way to reimburse employees, the actual expenses method necessitates a meticulous approach to covering all conceivable vehicle-related costs. This means that a lapse in documentation could result in everything from inaccuracies mileage reimbursement fraud to disagreements over reimbursement amounts.

By having employees try to calculate every possible cost, including, yes, gas prices, as well as maintenance, insurance, and depreciation, employers do encourage fairness and transparency – but it is a much harder method to execute correctly than using a mileage rate. Certain costs can easily be misinterpreted – after all, gas prices change very often, and as stated above, can vary widely from region to region. Besides the room for discrepancies and miscalculation, this method requires a lot of admin work. The diligence it takes to maintain and verify records is crucial for this method to work, and it’s time your organization’s management and supervisors might not have. 

Creating Equitable and Transparent Reimbursement Policies

Whatever method your business ends up using, ultimately your priority should be making sure that process is being thoroughly explained and taught to employees. Clear and transparent reimbursement policies lay the foundation for trust and mutual respect between company employers and its employees. For example, make it clear exactly how reimbursement payments are determined, how mileage is calculated, how mileage reported by employees is verified and approved, and any other information relevant to your organization’s mileage reimbursement process. 

CompanyMileage Makes Reimbursing Employees Easy

Grasping the intricacies of mileage reimbursement is integral for the appropriate application of your chosen mileage reimbursement method, and for maintaining equitable and transparent reimbursement practices. However, those intricacies can get pretty intricate! That’s why CompanyMileage’s suite of mileage reimbursement software is designed to help businesses implement a clear, secure, user-friendly reimbursement process for employers and their mobile employees.

CompanyMileage uses a unique, point-to-point method to automatically calculate mileage and prevent mileage padding from employees. Additionally, our automated, customizable workflows make it easy for employees to report mileage right from their smartphones, for supervisors to review and approve requests, and with systems that can integrate to your payroll and accounting software, and for companies’ accounting teams to issue payments. 

CompanyMileage also offers resources like our rate calculator, so that businesses looking to use a mileage rate for reimbursement can calculate a rate based on their area’s gas prices. Contact CompanyMileage today to request a free demo!