Fuel Management for Fleets: Costs, Volatility, and Smarter Programs

Fuel is one of the largest and most volatile operating costs in any fleet or vehicle reimbursement program. 

Prices can rise or fall quickly, costs vary significantly by region, and a reimbursement program that reflects real-world driving expenses today can become inaccurate in just a few months if it doesn't adapt. 

For finance leaders, that volatility creates a constant balancing act between controlling costs, reimbursing employees fairly, and maintaining predictable budgets.

This guide explains why fuel costs are difficult to manage, how volatility affects different reimbursement models, and where fuel cards can create hidden costs. 

It also explores strategies organizations can use to keep reimbursement programs accurate as market conditions change. Let’s dive in.

Fuel Price Volatility: Why It Creates Problems for Fixed Programs

Fuel prices can change quickly, and this creates challenges for reimbursement programs that rely on fixed payments or annually updated national averages. 

According to AAA, the highest recorded national average price for regular unleaded gasoline was $5.016 per gallon on June 14, 2022 (data as of July 16, 2026). 

For comparison, the national average was $3.160 per gallon one year ago, which shows just how dramatically fuel prices can rise and fall over relatively short periods. 

For companies with employees using personal vehicles for work, the volatility of fuel prices raise an important question: are reimbursements still aligned with the real cost of driving?

The answer depends on how the program is structured. Programs that use updated market data can respond as costs change. 

Fixed allowances and national rates that are updated less frequently may fall out of sync with local driving expenses.

The COVID Fuel Cycle: A Recent Example

This dynamic is not new. The COVID pandemic produced some of the most dramatic fuel price swings in decades, and the companies that handled it best were the ones with programs built on market data rather than fixed rates.

Prices fell sharply in 2020 as travel demand collapsed, then rebounded just as quickly as economic activity resumed in 2021 and 2022. In just two years, the national average price of gasoline nearly doubled. 

For organizations relying on fixed vehicle allowances or reimbursement rates that changed infrequently, that rapid increase created a widening gap between what employees were paid and what it actually cost to drive. 

Programs built on current vehicle expense data were better positioned to keep reimbursements aligned with changing market conditions, reducing both underpayment for drivers and unnecessary overspending by employers

What Fuel Volatility Actually Costs Drivers

Fuel is one of the most visible costs of driving, but it represents only one part of the total cost of operating a vehicle. 

According to AAA's Your Driving Costs study, the average cost to own and operate a new vehicle in the United States is $11,577 per year, or about $964 per month. 

That figure includes depreciation, insurance, maintenance and tires, registration and taxes, as well as fuel.

Focusing on fuel alone means you have an incomplete picture of what it actually costs employees to drive for work. While fuel prices may fluctuate the most, they are only one part of overall vehicle expenses. 

The most accurate reimbursement programs account for both fixed ownership costs and variable operating costs, helping reimbursements remain fair and aligned with real-world driving expenses over time.

The IRS Standard Mileage Rate: A Useful Benchmark With Limits

The IRS standard mileage rate for business use was 72.5 cents per mile at the start of 2026. In response to rising fuel prices, the IRS issued a rare mid-year adjustment, increasing the rate to 76 cents per mile effective July 1, 2026. 

The IRS mileage rate is designed to reflect the average cost of driving for work, not just the cost of fuel. That's why it's commonly used as the benchmark for tax-free mileage reimbursement.

In recent years, the rate has increased alongside broader vehicle ownership and operating costs, highlighting how the cost of driving extends well beyond gas prices.

The IRS standard mileage rate works well for many organizations, especially those with smaller programs or employees who drive for work only occasionally. 

But it has real limitations for companies with large or geographically distributed workforces. 

It is based on a national average and is typically updated only once a year, which means it doesn’t capture regional price differences or respond quickly to mid-year market shifts.

How Different Reimbursement Structures Handle Fuel Volatility

Every reimbursement program responds differently when fuel prices change. 

Understanding those differences can help organizations choose a solution that stays accurate as driving costs rise and fall.

Flat Car Allowances

Flat car allowances give employees the same payment every month for using their personal vehicle for work. They are simple to manage, but they do not respond when driving costs change.

When fuel prices go up, employees may be left covering more of the cost themselves. When prices fall, employers may continue paying more than necessary. Because the allowance stays the same, it can quickly fall out of step with real-world expenses.

There is also a tax impact. Flat allowances are typically treated as taxable income, which means employees take home less and employers pay additional payroll taxes.

Company Fleet Vehicles

Company vehicles give employers more control over the vehicles employees drive, but that control comes with a lot of responsibility. The business has to purchase or lease the vehicles, manage maintenance, handle insurance and compliance, and absorb depreciation.

This approach can make sense for jobs that require specialized fleet vehicles or equipment. For everyday business driving, though, the added cost and administrative work can be difficult to justify, especially when fuel prices are changing quickly.

CPM Programs Using the IRS Rate

Cents-Per-Mile (CPM) programs based on the IRS standard mileage rate are straight-forward and simple to administer. They can work well for employees who drive occasionally or log relatively few business miles.

The challenge is that the IRS rate is a single national benchmark. It does not account for differences in fuel prices, insurance, taxes, or other vehicle costs from one region to another. 

That can lead to uneven results, with some employees being over-reimbursed and others receiving less than their actual cost of driving.

FAVR Programs

A Fixed and Variable Rate (FAVR) reimbursement program is designed to reflect the actual cost of owning and operating a vehicle. 

Instead of paying one flat amount or one national mileage rate, FAVR separates fixed costs, like insurance, depreciation, and registration, from variable costs, like fuel, maintenance, and tires.

Because the variable portion is based on current local costs, reimbursements can keep pace as fuel prices rise or fall. 

Employees are reimbursed more accurately based on where they drive, while employers avoid the overpayments and underpayments that often come with flat allowances or a single national mileage rate. 

When properly structured under IRS rules, FAVR reimbursements are generally tax-free.

Custom CPM Programs

Custom Cents-Per-Mile (CPM) programs take a different approach. Rather than relying on the IRS standard mileage rate, they calculate a mileage rate using real vehicle operating costs, including local fuel prices, insurance, maintenance, depreciation, and other regional expenses.

This allows reimbursement rates to better reflect the cost of driving in different parts of the country. As fuel prices and other operating costs change, the mileage rate can be updated to stay aligned with current market conditions. 

For organizations with employees spread across multiple states or regions, a custom CPM program often provides a more accurate and equitable reimbursement than a single national rate.

Why Fuel Price Averaging Matters

When gas prices spike, it's natural for employees to ask why their reimbursement rate didn't increase right away. The short answer is that reimbursement programs aren't designed to follow every daily change at the pump.

Fuel prices can move up and down from one day to the next. If reimbursement rates changed every time gas prices fluctuated, payments would become unpredictable and much harder for both employers and employees to plan around.

That's why many programs use monthly average fuel prices instead of daily prices. Averaging smooths out short-term swings while still capturing the overall direction of the market. 

As prices trend up or down over time, reimbursement rates adjust with them. The result is a program that's both accurate and predictable, without overreacting to every temporary spike or dip.

Fuel Cards: A Useful Tool, But Not a Complete Fuel Management Strategy

Fuel cards are a staple of many fleet programs, and for good reason. They make it easy for drivers to pay for fuel, simplify expense reporting, and give employers more visibility into fuel purchases than traditional expense reimbursements.

But a fuel card alone doesn't control fuel costs. Like any payment tool, it's only as effective as the policies and oversight behind it.

Where Fuel Costs Can Slip Through the Cracks

Most fuel overspend doesn't come from fraud or a single expensive purchase. More often, it's the result of small decisions that add up over time.

Drivers may choose a more expensive station because it's convenient.

 Premium fuel gets purchased when regular would do the job. Small amounts of personal use slip through, or transaction fees and pricing markups go unnoticed.

Individually, these costs are minor. Across dozens or hundreds of drivers, they can become a meaningful expense, especially since fuel is already one of the largest operating costs in most fleet programs.

Getting More Value from Fuel Cards

Organizations that get the most out of fuel cards typically pair them with clear policies and better visibility into how vehicles are being used.

A few best practices include:

• Connect fuel purchases with vehicle data. Integrating fuel card transactions with mileage or telematics data makes it easier to spot unusual fuel usage or purchases that don't match business driving.
• Use alerts for unusual activity. Notifications for unexpected purchases, unusually large transactions, or fueling outside normal business patterns allow managers to investigate issues early.
• Set purchase controls. Most fuel card providers allow organizations to limit transaction amounts, restrict premium fuel where it's unnecessary, define approved merchant types, and block purchases outside business hours.
• Review trends regularly. Looking at fuel data over time helps identify recurring patterns and opportunities to improve policies, driver behavior, or vendor selection.

Fuel cards work best when they're part of a broader fuel management strategy rather than the strategy itself.

When a Fuel Card Isn't the Best Fit

Fuel cards make a lot of sense for organizations that operate company-owned vehicles or have drivers who fuel frequently throughout the day.

For employees who occasionally use their personal vehicle for work, though, a mileage reimbursement program is often a simpler option. 

Instead of managing fuel purchases directly, employers reimburse employees for documented business driving, allowing employees to cover their own fuel and vehicle expenses.

Many organizations ultimately use both approaches. Fuel cards support drivers in company vehicles or specialized roles, while reimbursement programs cover employees who drive their own vehicles for business. 

Matching the right program to the right type of driver helps control costs without adding unnecessary administration.

How Finance Teams Can Get More From Fuel Expense Data

Fuel costs aren't just an operational issue. They also provide finance teams with valuable insight into how a vehicle program is performing and where costs are heading.

Better Visibility, Better Forecasts

Waiting until the end of the month to reconcile fuel expenses makes it harder to spot trends before they affect the budget.

With mileage tracking and reimbursement data available in real time, finance teams can see spending by driver, region, vehicle type, or business unit. 

That makes it easier to identify unusual patterns, build more accurate forecasts, and understand what's driving program costs.

When fuel prices change, market-based reimbursement programs also reflect those changes over time, giving finance teams a clearer picture of how rising or falling fuel costs will affect the budget.

Lower Payroll Tax Costs

How a vehicle program is structured matters just as much as how much it pays.

Flat car allowances are generally treated as taxable income, which means employees pay income and payroll taxes on the allowance, and employers pay payroll taxes as well.

Reimbursement programs that meet IRS accountable plan requirements, including properly administered FAVR and CPM programs, are generally tax-free because they're designed to reimburse employees for legitimate business expenses rather than provide additional compensation. 

To qualify, reimbursements must have a business purpose, be properly documented, and any excess payments must be returned.

For many organizations, simply changing how vehicle expenses are reimbursed can reduce payroll tax costs without reducing what employees receive.

Local Costs Matter

Fuel prices aren't the same everywhere, and neither are insurance premiums, registration fees, or vehicle ownership costs.

That's why a single national reimbursement rate doesn't always produce fair or accurate results. Employees in higher-cost markets may receive less than their actual driving expenses, while those in lower-cost areas may be reimbursed more than necessary.

Programs like FAVR and custom CPM account for local vehicle costs, helping reimbursements stay aligned with what it actually costs employees to drive where they live and work.

It's also worth keeping state requirements in mind. States such as Illinois and Massachusetts require employers to reimburse employees for necessary business expenses, making an accurate reimbursement program important from both a cost and compliance perspective.

Fuel Is Only Part of the Cost

Fuel tends to get the most attention because prices change so often, but it's only one part of what it costs to operate a vehicle.

Insurance, maintenance, tires, depreciation, registration, and taxes all contribute to the total cost of driving. 

AAA's Your Driving Costs study also notes that electric vehicles generally have the lowest maintenance, repair, and tire costs among the vehicle types it evaluated, highlighting how vehicle choice can have an impact on long-term operating expenses beyond fuel alone.

For finance teams, the goal isn't just to track fuel spending. It's to understand the full cost of business driving so reimbursement programs remain accurate, predictable, and aligned with real-world expenses.

Fuel Costs Will Keep Changing. Your Program Should Too.

Fuel costs will always fluctuate. 

The goal isn't to predict where gas prices are headed, but to build a vehicle program that can adapt as they change.

Whether your organization uses company vehicles, fuel cards, or reimburses employees for driving their personal vehicles, the most effective programs are built around accurate data, clear policies, and reimbursement methods that reflect the real cost of business driving. 

That helps organizations control costs, reimburse employees fairly, and avoid the inefficiencies that come with outdated or one-size-fits-all approaches.

If you're reviewing your current vehicle reimbursement program or looking for a better way to manage fuel costs, Cardata can help. 

Our team can assess your current approach, answer your questions, and help you find a reimbursement solution that fits your workforce and your business goals.