The drop in the cost of fuel this July can potentially impact on employees, employers and payroll. The effect that the price has on the business and employee will depend on the systems the business has in place, how fuel costs are structured and charged, and the type of contract the organisation has with its clients.
“As an employee, the impact of the fuel drop should not be significant, especially if the company is paying AA rates. You will be paying less for fuel so the difference will come out in the wash,” says Teryl Schroenn, Chief Executive Officer, Accsys. “For the organisation, however, there are steps and systems that need to be addressed to ensure that costings and clients are kept up to date.”
When the fuel price changes, many businesses change the rate for calculating what the employee takes home and assess what the impact will be on cost to client. It is important that this price be reflected in what the client pays for transportation or delivery as it can have a significant impact on their bottom line, and the company’s ethical standing.
An honest approach
“Depending on the pricing model and structure of the arrangement that a company has with its clients, the changes in fuel cost will reflect in costing with clients,” says Schroenn. “This would be outlined in the Service Level Agreement, and needs to be adhered to. It will depend a lot on the tolerance of your customers if your business doesn’t adjust accordingly – some may notice. We adjust ours during the month when there is a change.”
For organisations that average out the fuel costs, however, the relentless fluctuations may have little to no impact.
“If you average at, for example, R3.20 per k/m you might leave that, even though the price is down to R3 as you may not have put it up to R3.40 when the price was at its highest,” explains Schroenn. “That said, if you are charging someone a rate for a particular item, it would be considered a good business practice to change the pricing accordingly.”
Payroll should follow company policy when it comes to adjustments around fuel pricing and employee wages and client charges. How this is done will depend entirely on the systems implemented in the business and the methodology employed for calculations.
“Many systems are automatic so the calculations are done as amounts are submitted and payroll assessed,” concludes Schroenn. “Those that do them outside the system and pay it manually will have a more complex task, but could look to adopting a different way of handling pricing with each fluctuation. It would be advisable to introduce a methodology that is as simple and effective as possible because fuel prices won’t stop their mercurial changes.”