Under Labor Code Section
2802, employers must repay employees for “all necessary expenditures or losses”
they incur in direct connection with performing their job duties. But
employers, employees, and courts have grappled with issues such as what must be
reimbursed and at what rates, and whether paying an increased salary or
commission satisfies the reimbursement requirement. To provide more clarity,
the Division of Labor Standards Enforcement (DLSE) has issued proposed regulations.
Here’s an overview of the proposal, which could undergo revisions before it’s
finalized.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
Mileage Reimbursement
The proposed rules state
that with respect to reimbursing employees for the business use of personal vehicles—which
does not include commute mileage— the IRS standard vehicle mileage
reimbursement rate is presumed to be a reasonable reimbursement rate. An employer
that believes the employee’s actual costs of operating the vehicle are lower
than the IRS rate has the burden of proving the actual expenses. Conversely, an
employee who believes his or her actual costs are higher has the burden to
prove this is so. The following items can be considered in determining actual operation
costs: gas, oil, lease payments, garage rent, repairs and tires, vehicle
depreciation, state Department of Motor Vehicles registration fees, insurance,
and licenses.
Mileage expenses must be
reimbursed when wages are due or at least once a month, no later than the end of
the calendar month following the month when they were incurred. A detachable
part of the check must include an itemized statement, including the
reimbursement rate, dates, and number of miles covered. Alternatively, the
employer can give the employee a copy of the mileage reimbursement claim,
indicating which items are being paid and rejected. Mileage reimbursement that
is included in the same check as wages must be itemized on the wage statement.
Employers must keep
daily mileage records for employees who use their personal vehicles for work. To
satisfy this obligation, you may require employees to submit necessary mileage
information. The records must be in ink or other indelible form, properly
dated, and kept for at least three years.
Employer-Provided
Vehicle Costs
Employers that provide
vehicles to employees for work use must pay all expenses the employees incur for
the car. The items that must be reimbursed are the same as for an
employee-owned vehicle. Employers must keep the same types of records and make
payment in the same manner as for an employee-owned vehicle.
Per Diem and Other
Travel Expenses
The draft rules define
per diem expenses as the daily costs an employee incurs—including meals,
lodging, and incidentals—because of travel away from home for work.
Employers must reimburse
for meals (breakfast, lunch, and dinner), hotel room costs, and incidentals, either
based on actual cost or at the IRS approved rates. Reimbursable incidentals
include: fees and tips for porters, baggage carriers, hotel maids, etc.;
transportation between places where meals are taken; and mailing costs
associated with filing travel vouchers and payment of employer-sponsored charge
card billings.
There are a host of “other
travel expenses” for which an employer must reimburse at actual cost. These
include: tolls; parking charges; rental vehicles (although the employer can
impose a reasonable cap on the price); laundry costs incurred in connection with
employee travel; mailing costs; telephone calls and faxes; and shipping
charges. Also, employers must reimburse for the cost of transportation by air,
train, bus, car, or boat between the employee’s origination point and the
destination where work is to be performed. Note that employees are also
entitled to their travel costs to and from their home, place of business or
lodging, and the airport.
Employers must, in
advance of travel, provide written notice to employees of any employer policies
regarding reimbursement for per diem or “other travel” expenses, including the
employer’s maximum allowance. Failure to provide such notice means the employee
can seek reimbursement for their actual expenses, even if above the employer’s
maximum. Employers must keep records and pay per diem and other travel
reimbursements, similar to the records and payment rules for vehicle expenses.
Deductions, Waivers, and
Enforcement
The proposed rules bar
employers from deducting from amounts paid to employees for expense
reimbursement. What’s more, the rules make clear that employer-employee
agreements to less than full indemnification for expenses are void.
Under the draft rules,
an employee can enforce their Labor Code Section 2802 reimbursement rights by
filing a claim with the DLSE or by filing a lawsuit. The DLSE can also file its
own action to recover unreimbursed expenses. An employee who files a complaint
or lawsuit can recover attorney’s fees and costs in addition to the expenses
claimed.
What’s to Come?
It is important to note
that the DLSE’s proposal does not permit employers to simply pay increased
compensation to cover vehicle, per diem, or other travel costs. However, the
California Supreme Court is currently considering a case in which a
ruled that Section 2802 permits employers to pay an increased commission or
salary instead of payment for actual expenses or at the IRS rates. We’ll keep
you posted on the outcome.
The DLSE’s proposed
rules are available online at www.dir.ca.gov/dlse/2802Regs.htm.