Fleet Manager's Guide to Common and Costly Home Charging Calculation Errors

Fleet managers are increasingly considering take-home electric vehicles (EVs) as a sustainable and cost-saving option in their move to fleet electrification.

Along with some obvious benefits comes a subtle challenge: Accurately reimbursing employees for their home-charging costs.

What at first seems like a simple task can quickly turn into hours of administrative headaches, thanks to America’s complex, diverse utility plans and billing practices. Missteps in the reimbursement process can lead to financial inefficiencies, reduced incentives for home charging behavior, and legal liabilities. Understanding these pitfalls and how to avoid them is crucial for setting up and running a successful home charging program.

The Pitfalls of 'Easy' Reimbursement Methods

Fleet managers exploring home charging options might be tempted to adopt a one-size-fits-all solution. What these approaches save in administrative time, they cost in accuracy, fairness, employee satisfaction, and legal compliance. These methods include: 

1. Flat Allowances

A simple mistake is offering a flat reimbursement allowance for home charging. Straightforward from an administrative standpoint, this method fails to encourage home charging because compensation is not tied to actual electricity use.

It also introduces economic inefficiencies, with a significant portion of each payment going to taxes: 7% for the company and up to 35% for the employee. Furthermore, it risks over- or under-compensating employees, which can open the company up to class action lawsuits under labor laws such as CA2802, and create widespread employee discontentment and reputational damage for the fleet program and/or company at large.

As a result, many companies start with this method when they have only a couple employees driving EVs, but quickly search for a better alternative as they scale.

2. Regional Rate

Adopting a regional or single electricity rate for reimbursement calculations is another classic pitfall. This oversimplified approach often inaccurately reflects an employee's actual charging costs, leading to over- or under-payment. Sometimes this discrepancy can be as much as 10-20 cents per kWh, depending on the employee’s specific plan.

Thus, while using a regional rate removes the tax waste issue of a flat allowance (at least for the portion of the payment covering the employee’s real costs), it still leaves the company facing the same employee dissatisfaction and potential legal concerns as a flat rate system. 

3. Average Cost per kWh

Well-intentioned companies strive to pay actual costs yet struggle with accurately calculating home charging reimbursements due to the complexities — such as tiered and time-of-use rates — of electricity bills. In these cases, it can be tempting to use an average kWh approach, but this method creates inaccurate and often unfair results. Let’s look at two examples.

Tiered Rate Plan

In a tiered rate plan, the consumer pays different kWh rates based on total consumption with the rate increasing in each tier.

For example, a PG&E tiered plan might bill the first 500 kWh at about 42 cents and anything above that at $.53/kWh. If the driver would typically use 450 kWh, their bill before charging at home would be (450 *.42 = $189). If they now charge the company EV 375 kWh/month, their new bill will be (450*.42+50*.42+325*.53 = $382.25).

If the company uses an average kWh rate (total bill/total kWh), they will reimburse at ($382.25/825) = $.4633/kWh and reimburse the driver $173.74 for the 375 kWh. However, the driver is paying $208.51 (almost $20 a month more) for their own electricity because of the additional charging. By relying on a monthly average, the company is unfairly pushing the driver’s home energy costs up without compensation. 

Time of Use Plan

Time-of-use plans, in which electricity rates vary depending on the time of day, also should not be reimbursed using an average. To illustrate simply, suppose an energy provider charges $0.15 per kWh during off-peak hours (8 p.m. to 8 a.m.) and $.30 per kWh during peak hours (8 a.m. to 8 p.m.).

Let’s say that before charging the company’s EV at home, a driver typically consumes 600 kWh per month, with 400 kWh used during off-peak hours and 200 kWh during peak hours. Their monthly electricity bill without EV charging would be (400 kWh * $.15 + 200 kWh * $.30) = $120. After they start charging their EV at home, they add 200 kWh of additional consumption, all during off-peak hours, to take advantage of lower rates. Their new total consumption is 800 kWh, with the bill becoming (600 kWh * $0.15 + 200 kWh * $0.30 + 200 kWh * $0.15) = $150.

If the company reimburses using an average rate calculated as (total bill / total kWh), the rate would be ($150 / 800 kWh) = $.1875 per kWh. For the 200 kWh of EV charging, the company would reimburse the driver $37.50. However, this average rate fails to account for the fact that all the additional EV charging occurred during off-peak hours, when the actual cost is lower ($0.15 per kWh).

Properly reimbursing for the off-peak EV charging should cost $30 (200 kWh * $0.15), not $37.50. Here, not only is the company overpaying for electricity, but the excess payment could be considered a taxable benefit. 

These examples underscore how average rates can distort reimbursement calculations, leading to inaccurate compensation for drivers and potentially increased costs or liability for companies over time.

Additional Bill Complexities

Adding to the complex reimbursement puzzle administrators are left to muddle through are a vast library of fees and credits, which all require different treatment.

For example: 

Solar Offsets and Net Metering

Solar energy (or any net metered power generation) can easily distort reimbursement calculations, as kilowatts from these employee-owned assets are subtracted from the utility bill. If the reimbursement calculation is based off of a total bill, these credits can easily become a benefit to the company at the expense of the employee.

Calculating the proper reimbursement requires neutralizing the impact of all net metered energy production. 

Government Subsidies

Overlooking government subsidies, which can be flat fees taken off the top of a bill or provided as a discount per kWh, can lead to inaccurate reimbursements. Even if unintentional, it looks very bad for a company to inadvertently profit from incentives meant to encourage the adoption of renewable energy or to provide financial aid to low-income individuals.

To avoid such a scenario, reimbursements should calculate the net cost to the employee after these subsidies are applied, ensuring the benefits intended for the employee are fully preserved.

Taxes and Fees

The myriad taxes and fees on utility bills add another layer of complexity. Each charge influences the final reimbursement amount, demanding detailed attention. Companies should pay their fair share of any taxes or fees that are scaled based on kWh use but are not responsible for fees that would be assessed on the driver anyway.

Each fee, therefore, no matter how small, must be researched and indexed for proper accounting. 

The Role of Software-Based Solutions

Running accurate calculations can be time-consuming. Some administrators report it takes as much as an hour per employee to ensure accuracy. In navigating the potential pitfalls, the role of an accurate home charging reimbursement software solution cannot be overstated. Such technology automates the reimbursement calculation process, ensuring precision by considering the myriad factors that influence electricity costs, including tiered rates, time-of-use variations, solar generation, taxes, fees, and subsidies.

By doing so, these solutions provide a fair, compliant, and efficient approach to EV home charging reimbursements. Moreover, these platforms can offer additional benefits such as integration with expense reporting systems, reduced administrative burdens, and greater transparency. This not only simplifies the process for fleet managers, but also enhances trust and satisfaction among employees, encouraging the adoption of EVs and supporting the organization's sustainability goals.

Conclusion: Navigating Reimbursement with Insight and Precision

For fleet managers, the shift to electric fleets underscores the need for a meticulous approach to reimbursing home charging costs. The challenges presented by traditional methods and the complexities of electricity billing demand a sophisticated solution. Accurate, software-based reimbursement platforms have emerged as vital tools in achieving fairness, efficiency, and compliance, steering companies towards a sustainable and equitable future.

In embracing these advanced solutions, fleet managers can avoid common pitfalls, fostering a positive culture around EV adoption and ensuring that sustainability efforts are supported by fair and transparent practices.