We’re trying to straighten out our auto reimbursement policy. First, we have employees who drive their own cars between worksites each day as well as to different sites each day. The miles vary from 10 up to 100 miles in a day. Do we have to reimburse them and, if so, at what rate? We also have employees who drive company vehicles. When they drive the company vehicle for personal errands or trips, can we have the employees reimburse the company for the use? If so, what’s the rate? — Ronald F., HR Director in San Jose
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
We asked Thomas N. Makris to tackle this question for us.
The first half of your question is a very common issue. Labor Code Section 2802 requires the employer to reimburse an employee for “… all necessary expenditures or losses incurred by the employee in direct consequences of the discharge of his or her duties….” This includes the cost of operating the employee’s personal vehicle while on company business.
The reimbursement amount can be calculated using actual costs. For this approach, total all expenses associated with operating the vehicle during the month, including depreciation. Then, determine the portion attributable to business travel, based on the ratio of business miles to total miles driven.
The California Division of Labor Standards Enforcement has also approved reimbursement based on the IRS Optional Standard Mileage Rates. Most employers prefer this approach because it is much simpler. Since January 1, 2006, the IRS Optional Standard Mileage Rate has been 44.5 cents per mile. However, this rate can vary. During the last four months of 2005, the rate was raised to 48.5 cents a mile because of increased gas prices. Employers using the IRS rate must keep abreast of changes and adjust their reimbursement practices accordingly. The rates are available on the IRS website.
You are not normally required to reimburse an employee for miles traveled commuting between home and work at the beginning and end of the workday. However, if the employee starts or ends a particular workday at a location that is further from his or her home than the distance from the employee’s normal worksite to the employee’s home, the employee must be reimbursed for the additional miles.
The second half of your question is less common. In my experience, most employers adopt a policy that personal use of a company vehicle is not permitted unless it’s considered a perk of the job. Allowing employees to use a company vehicle for personal travel increases the employer’s exposure to liability for accidents, and I recommend that employers not permit such use.
However, there are a variety of situations where employers charge employees for personal use of company equipment—personal mail stamped on the company postage meter, personal use of the copier or fax machine, personal calls on a company-provided cell phone, etc. I see no legal reason why you couldn’t ask employees to reimburse the company for personal use of the company vehicle if you choose to allow such use. I would state the policy in the alternative: “Company-provided vehicles generally should not be used for personal, nonbusiness travel. If you do use a company-provided vehicle for nonbusiness travel, you are required to report the nonbusiness miles traveled and to reimburse the company at the rate of ____ per mile.” Base your rate on the expenses the company incurs associated with operating the vehicle. This will be less than the IRS rate because a major component of the IRS rate is gas, which is presumably an expense the employee pays when traveling on personal trips.
If you do charge employees for personal use of a company-provided vehicle, or any other company-provided equipment, you should ask the employee to write a check for the charge. Don’t deduct the charge from the employee’s pay unless the employee authorizes this deduction in writing.
Thomas N. Makris is counsel at the Sacramento office of law firm Pillsbury Winthrop Shaw Pittman.