Mileage Reimbursement Under California Law

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Although it’s a common practice among many businesses to offer mileage reimbursement, no federal laws require them to do so.

California, however, requires employers to compensate their workers for all expenses incurred while performing their jobs.

But navigating the reimbursable and non-reimbursable expenses can prove a challenge. See, there is a lot more to business mileage reimbursement than the cost of fuel and working out which of these costs are eligible for compensation can be quite the challenge. Not to mention the tax obligations regarding the reimbursements, and how they affect your income.

In this article, we will delve into the intricacies of mileage reimbursement, and demystify the reimbursement laws in California.

The California Labor Law

California Labor Code Section 2802 obligates employers to reimburse their employees for all expenses incurred during the discharge of their duty.

The code states that the penalty for not reimbursing an employee includes:

  • Costs incurred in obtaining reimbursement
  • Liability for expenses, plus interest
  • Attorney fees

The Division of Labor Standards Enforcement (DLSE) also confirms that in the absence of any contradicting evidence, the IRS mileage rate will satisfy any reimbursement claims.

According to the DLSE, if an employer uses the standard IRS mileage rate, then they meet their obligation to pay for business mileage.

Furthermore, if both parties can agree on a rate for the mileage expenses, then this rate can substitute for the mileage reimbursement.

The Court of Appeal also clarifies the parameters for mileage reimbursement in Gattuso v. Harte-Hanks shoppers.

The court states that if an employee challenges the amount reimbursed, they bear the burden to show how the rate is less than their actual expenses.

It also held that the reimbursement rate is negotiable between the employer and employee. Provided the agreed-upon rate fully compensates the employee.

Additionally, it warned that an employee couldn’t waive their right to be fully compensated for the actual business mileage:

“We agree that, as with other terms and conditions of employment, a mileage reimbursement rate for automobile expenses may be a subject of negotiation and agreement between employer and employee.

Under section 2904, however, any agreement made by the employee is null and void as long as it waives the employee’s right to full expense reimbursement under the Labor Code.”

Gattuso, at 479

The Court also said that an increased salary or commissions might also be a substitute for the mileage reimbursement law, but this is only applicable so long as the compensation, after taxes, is enough to cover the expenses incurred by the employee.

Mileage Reimbursement Under California Law: What Do You Need to Know?

With different provisions about mileage reimbursement, it can be difficult to work out what you may claim.

There are also a few different methods your employer can use to reimburse your business mileage.

Here’s everything you need to know about mileage reimbursement in California.

The IRS Mileage Rate: An Umbrella Rate

The Labor Commission for California regards the IRS Mileage Rate as a reasonable measure for all mileage expenses.

But if you can prove that your actual expenses are more than the standard IRS rate, then you’re entitled to compensation at the actual rate.

The IRS Mileage Rate Is a Guide

The mileage reimbursement rate is a guideline set by the federal government for mileage reimbursement. But the federal government does not enforce this law.

In California, you can get compensation for all driving expenses incurred as part of your job. That is, except for the commute to and from work.

California allows for several ways for employers to reimburse any business mileage.

The most common way is through the standard IRS reimbursement rate. But they can also use the actual expense method, lump-sum method, or a fixed rate.

The Three Mileage Reimbursement Methods

The California Supreme Court clarified the limits of mileage reimbursement. It also stated the three methods for compensation. These are:

1. Actual Expense Reimbursement

The actual expense reimbursement method is the most accurate business expense reimbursement method. Here, both the employer and employee calculate the automobile expenses incurred. The employer then pays out that amount separately.

2. Mileage Reimbursement Method

The Court also acknowledged employers might calculate the amount owed to their employees. They can then pay an amount based on the total miles driven.

The employee need only keep track of the number of miles they drive for job duties. The employer then multiplies this number by a predetermined amount.

The amount can be the Standard Mileage Reimbursement Rate or another amount agreed upon by both the employer and employee. This figure is approximately the per-mile cost of owning and operating a vehicle.

3. Lump-Sum Payment Method

Here, both employer and employee agree to a fixed monthly amount for automobile expense reimbursement.

This type of compensation is also known as a car allowance, gas stipend, or per diem.

Note that under the lump-sum method, employers bear the extra burden of identifying and documenting payments.

You Can Challenge the IRS Mileage Rate

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The Ultimate Vehicle Mileage Tracker App

As an employee, you are well within your rights to contest whatever rate your employer uses for mileage reimbursement. All you need to do is prove that your actual expenses are more than the provided reimbursement rate.

A great way to do this is through the use of a reliable mileage tracking app like GOFAR.

This enables you to track your business mileage and all associated costs. It also offers seamless report generation for easier mileage reimbursement claims.

Reimbursable Expenses You Can Claim

Typically, mileage reimbursement covers the costs of running your private vehicle for work. This includes the costs of automobile expenses such as:

  • Parking and ferry fees, bridge, road and tunnel fees, airplane landing and parking fees, and tie-down fees.
  • When you use your car for work purposes near your home or station.
  • When you first report to your office then travel to other work sites.
  • When you drive to a temporary job location, provided you don’t operate directly from your home to the office.
  • When you travel for training purposes.

The FLSA Kickback Rule and California Mileage Reimbursement

The Fair Labor Standards Act requires that employee wages be free and clear. Employees can’t “kick-back” part of their income to their employers. Whether it’s in cash or non-cash methods such as the use of a private vehicle for business.

The kickback rule seeks to protect employees who earn minimum wage or close. Kickbacks, in this instance, would put the employee’s hourly rate below minimum wage. This would, in turn, mean the employer is in breach of the FLSA minimum wage rule.

Is Mileage Reimbursement a Taxable Income?

Mileage reimbursement is taxation free if you have an accountable plan. A standard accountable plan follows these guidelines:

  • The reimbursed funds have a business connection.
  • The reimbursed funds have corroborating documentation.
  • Any excess funds are refunded within a reasonable time.

Note that for reimbursements above the IRS mileage rate, the IRS considers the excess as taxable income. Therefore, if your actual expenses exceed the standard IRS rate, you should itemize your deductions to deduct the excess.

Mileage reimbursement In California is critical. Employers stand the risk of lawsuits if they don’t observe employee compensation guidelines per the Labor Code.

But working out an accurate and reliable reimbursement program can be a bit of a hassle.

An ideal reimbursement program relies on automatic mileage tracking like that provided by GOFAR.

GOFAR provides a standardized digital reporting system for business mileage. It also helps:

  • Save money – up to 34.5 percent of employees admit to inflating their business mileage for reimbursement. An automated mileage tracker eliminates this issue, saving any business money.
  • Boost Productivity – Employees spend up to four hours every month, manually logging and reporting their business mileage – time they may use productively elsewhere.
  • Be Compliant – GOFAR is IRS compatible. It generates reliable records that can stand up to any scrutiny and minimizes any chances of fraud.

Contact GOFAR today to find out how you can incorporate their mileage tracker for a more efficient reimbursement program.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
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