Everywhere we go we see inflation. At the grocery store. When shopping on Amazon. At the gas pump. The insidious increase of inflation is sneakily eating away at people’s paychecks, putting a strain on us when purchasing the things we need to get by.
Most companies review pay annually, and with a steep jump in prices continuing early this year, the pay raise you received in January may be eaten away by inflation before it’s reviewed again at the end of the year. Because of this, more companies are at least considering reviewing pay more often, although this is still uncommon.
All this is happening while the pandemic of the past two years starts to wane, and many employers are pushing a return to the office. This puts employees in a predicament because many like the flexibility of working from home, and now commuting has gotten much more expensive. Given a tight labor market, employees may be in a stronger negotiating position to retain the perks of working from home that they’ve become accustomed to over the past two years.
One obvious way to reduce the cost of filling at the pump is to decrease the amount you’re driving. One of the main reasons people put miles on their car is commuting. As of April 1, AAA recorded the national average cost of gasoline at $4.21 a gallon. These recent prices are the highest ever, and if you’re able to work from home, you may significantly reduce your total expenditure on gas. And now that spring has arrived, we (hopefully) won’t need to heat our homes as much, which otherwise may offset any savings on travel with increased heating costs when we would normally be out of the house.
These dollar savings are in addition to the amount of time and stress employees save by not having to commute in the morning. If your employer is pushing a return to the office and you still would prefer the flexibility of working from home, the recent surge in gas prices is a strong argument to continue the flexibility at least for the near future.
We’ve written about this before but living in one state and working in another can create a tricky tax situation. As we are located in New Hampshire, many people we know live in New Hampshire but work in Massachusetts. The tricky part of this tax situation is that since the emergency order expired in Massachusetts, only your income earned on days you worked in Massachusetts is taxable to that state. If you’re working from home in New Hampshire, your income is no longer taxable to Massachusetts.
For people with this working situation, the arduous commute from New Hampshire to a city like Boston can be a nightmare — long, stressful, and, as previously discussed, increasingly expensive. Add needing to pay Massachusetts income taxes to that list and it’s no wonder many employees in this situation would opt to work from home if they could. This is yet another strong case in favor of employees working from home.
How About a New Car?
With gas prices skyrocketing, maybe it’s time to upgrade to a more fuel-efficient vehicle? While that is a good thought, unless you really need a new car, it’s not the best time to go car shopping. Supply chain issues have continued to plague vehicle manufacturers, so inventory has remained persistently low. This has caused prices of new and used cars to increase even faster than general inflation. It also means consumers are less likely to find deals on vehicles in this environment. Many dealers are charging a market premium on top of MSRP. For the more popular models, including many electric vehicles, the market premium can be more than $10,000 above MSRP.
With the current prices of cars this high, any savings on fuel are likely to be overshadowed by the sticker price of the vehicle. Of course, if you need a car and don’t have a choice, you’ll have to buy one. However, seeking a newer, more fuel-efficient, or electric car just for the sake of saving money on fuel is likely not the optimal decision.
How Do Fuel Costs Impact Business Owners?
If you own your own business, you have more control over how much you are able to work from home versus going to an office (if you have one). However, depending on your business, there may be times that you can’t control when you need to commute somewhere for business activities. Many vehicle expenses are deductible when used on the business, but there are two ways of calculating them: actual expenses and standard mileage.
Many times it makes sense to claim the IRS standard mileage because it ends up providing a greater deduction and is easier to calculate. The mileage rate for 2022 is 58.5 cents a mile for miles traveled for business purposes. This standard mileage rate generally increases every year, but it is decided upon before the previous year is over. With inflation as high as it is, especially when it comes to travel, the additional costs we’ve experienced since the start of the year were not included in this calculation. If costs continue to rise, or even stay where they are all year, it is likely that the standard mileage rate will be insufficient when compared to your actual expenses.
An alternative method is to calculate the actual costs of using your vehicle for business purposes. The downside to this is that it requires more work and recordkeeping. You have to track how often you use the vehicle for business versus personal use. You have to prorate the costs of repairs, maintenance, insurance, and titling, among other expenses. There is certainly more work involved than just taking the IRS standard mileage expense, but in some cases, and increasingly likely this year, the deduction can be much larger. Luckily, we’re in the first quarter of the year, so if you haven’t been tracking your vehicle expenses closely, now is a good time to start (or to gather the information for expenses already incurred).
Negotiating Working From Home
Despite the push by many companies for employees to return to the office, the perks of working from home are something many employees are reluctant to let go of, and for good reason. Beyond the savings of time and stress from commuting, working from home is increasingly saving more dollars because of the rising costs of commuting.
The current economic environment puts employees in a strong position to negotiate continuing to work from home, not only because of the increasing cost of commuting but also because employers are having a hard time attracting and retaining employees in the current job market. More and more people are weighing flexibility and work-life balance higher than a larger salary.
However, it’s important to balance your wishes with those of the company. There are sometimes good reasons to go to the office – such as collaboration and socialization – but employers should be able to articulate why employees returning to the office makes sense for the business. It seems impractical to go to an office just to continue Zoom meetings.
As Stephen Covey wrote in his best-selling book The 7 Habits of Highly Effective People, the desired goal in a negotiation is to create win-win scenarios. In a situation where one party wins and the other loses, the “loser” is likely to be resentful and not fully on board with the decision. Compromise is desirable.
If your employer insists that you return to the office full time, and you would like to continue to work from home at least part time, discussing the higher commuting costs is a strong argument. Since many companies won’t review pay again until annual reviews, it may be perfectly reasonable to request a continuation of working from home part time to allay some commuting costs.
Alternatively, in lieu of an increased salary midyear, it may be appropriate for companies to consider a commuting stipend for those who need to go to the office. This would be an incentive to come into the office and would also help defray some of the additional commuting costs. Another option is offering a vehicle reimbursement program to offset the costs of buying a new, more fuel-efficient vehicle or offering company cars in general. Take note, however, cash incentives for commuting costs are taxable income to you.
A tax-free option may be an internet and mobile phone reimbursement program, if your working from home is for the benefit of the employer and you are required to use your cell phone for work.
If you drive an electric vehicle, charging stations at the office could be a benefit, if your company doesn’t have these set up already (or the number it has is insufficient), so you don’t have to do all of your charging at home.
Many things in life are negotiable, even if we generally don’t realize it. With inflation and travel costs taking a bigger bite out of people’s budgets, if your company is considering discontinuing their work from home programs, they may consider a compromise of sorts. Inflation and employee turnover are issues that nearly every business is dealing with. Providing creative options to retain employees, without a mid-year salary adjustment that affects all future years as well, may be an option more HR departments are willing to accommodate. You’ll never know if you don’t ask! But it’s important to come from a place of genuinely wanting to create a win-win situation so that all parties involved can live with the result.
Inflation is hitting just about everything these days. We often see it most at the pump because a gallon of gas can’t be manipulated through shrinkflation. These high commuting costs are making working from home more appealing despite a push from many employers to get people back into the office.
Although it is likely many of us will need to return to the office, at least part time, with commuting costs the way they are, employees are in a strong position to negotiate working from home for longer periods of time, or other incentives to help defray some of these costs.
When negotiating anything, though, it’s best to seek a win-win situation so that all parties involved end up happy (at least mostly). This way, you’re maintaining relationships in the long term, and the parties involved will be more likely to work with you in the future when other requests come up.
Nick Prigitano, CFP® is an advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisor.