Under California Labor Code Section 2802, employers must “indemnify,”
or reimburse, employees for “all necessary expenditures or losses” they incur
in direct connection with performing their job duties. Most employers make a
good effort to reimburse employees for business expenses, such as mileage,
parking, and cell phone fees. But as the economy continues to falter— and employees endure
increased costs of living and small or nonexistent wage increases—employers that
aren’t scrupulous about reimbursement may face an increased risk of litigation
from employees who want to recoup every last business dollar they have spent on
work-related matters.
Employers Slapped with Class Actions
Employers across the state have already been hit with big lawsuits
over expense reimbursement. In May 2008, Starbucks agreed to pay out up to $3
million to settle a lawsuit claiming the coffee chain didn’t reimburse its
employees for business mileage. The suit was filed in federal court in the Eastern
District of California by former Starbucks employee Jonelle Lewis, who
contended that when she requested reimbursement for the business use of her
car, such as for making bank deposits, she was informed that it is Starbucks’
company policy not to reimburse for mileage. For settlement purposes, the case
was given class action status, covering store managers, assistant managers, and
shift supervisors who worked at Starbucks’ California stores between March 2003
and March 2008; those that qualify could each receive between $30 and $75.
Starbucks denied liability.
Other recent expense reimbursement class actions include one filed
against furniture retailer Ethan Allen Interiors, Inc., in the federal court in
reimbursement for work-related cell phone use, gas, and parking. A similar case
pending in San Diego Superior Court charges that wireless equipment dealer
BearCom didn’t reimburse employees for two-way radio and cell phone expenses.
Reimbursement Essentials
To avoid being the next class action target, now’s a good time to
make sure you know
expense reimbursements rules. Generally, you must reimburse an employee who
incurs costs that are necessary to discharging his or her duties at your
company. Depending on the job duties and circumstances, this could include a
wide variety of expenses such as mileage, vehicle lease payments and repairs,
parking, phone use and monthly fees, meals, hotel costs, and travel incidentals
(for example, laundry, tips, cabs, faxes, and shipping costs). If you’re in
doubt over whether an expense qualifies, you can save yourself a litigation
headache by reimbursing the employee and/or consulting an employment law
expert.
When an employee uses a personal vehicle for business, the
simplest way to reimburse is by using the IRS standard mileage rate, which
stands at 58.5 cents per mile until Dec. 31, 2008. The IRS rate takes into account
such factors as fuel, maintenance, repairs, and depreciation.
The California Supreme Court has also ruled that employers can
reimburse mileage based on actual expenses or pay employees a lump sum to cover
expenses.1 The “actual expense” method requires employees to keep detailed
records of all necessary vehicle expenses incurred and submit records to you for
reimbursement. With the “lump sum” method— sometimes called a per diem, car
allowance, or gas stipend—you pay a fixed amount for reimbursement, derived
from your general understanding of the expenses your employees incur, including
the average number of miles driven or automobile-related expenses they paid.
You must ensure, though, that the lump sum
fully reimburses employees for their expenditures.
There are no hard and fast deadlines—yet—for reimbursing expenses.
The California Division of Labor Standards Enforcement (DLSE) has proposed a
regulation regarding travel expense reimbursement, including for vehicle use,
that would require expenses to be paid when wages are due or at least once a
month and no later than the end of the calendar month following the month they
were incurred. To avoid problems, it’s a good idea to follow this DLSE-proposed
timeline and to keep detailed records of expenses submitted and paid. Also, be
sure to provide employees with an itemized statement of reimbursements.
For more on expense reimbursements and a sample policy, see CWHA January
and February 2008.
1 Gattuso v. Harte-Hanks Shoppers, Inc.,