California Employer Questions on Employee Expense Reimbursement Answered

Employee expense reimbursement can be a complex topic. Employees have a right to be reimbursed for their work-related expenses, including business travel, training, equipment, materials and more, but where do you draw the line? In a CER webinar titled “Employee Expense Reimbursements in California: Your Compliance Obligations Explained,” participants were given the opportunity to pick his brain on the topic. Here are some of the questions they asked; these may help you gain insights in your own employee expense reimbursement scenarios.

When Needn’t You Reimburse Employee Expenses?

The following are questions related to individual situations in which employees may not be within company policy. When are employers still obligated to reimburse employee expenses?

Q. The staff has 45 days to turn in mileage reimbursements, thereafter they’re not reimbursed. Are we liable for expense reimbursements after this timeframe?

A. This is an issue where the employer policy needs to be known by everyone in order for the employer to be able to enforce it. It should be the subject of training, and it should be repeated beyond simply handing out a policy upon hiring. While there is no specific legal maximum or minimum time requirement on employee expense reimbursement, this time frame (45 days) sounds reasonable as long as it is known.

However, this will depend on the circumstances at hand. The employee may make the argument, for example, that they were unable to get the expenses turned in within the timeframe, and that argument would have to be addressed. A 45-day timeframe should be sufficient in most cases though.

Q. If a staff member requests (and is authorized and receives) $100 to pay for a specific expense but goes over that amount, does the employer have an obligation to cover the difference? If the amount is $1.50 over? What about if the amount is double the originally approved figure, for example?

A. This situation ultimately comes down to the policy specifics and the training guidance. If the policy and training says that employees are not, under any circumstances, allowed to incur expenses in excess of a certain dollar amount (such as a pre-approved limit), a very strong argument could be made that the employee deviated from the policy. The best practice, however, is probably to pay it and discipline the employee accordingly, depending on the details of the situation. For example, for the scenario of $1.50 over the pre-approved amount, simply telling the employee not to do that again may suffice. In the scenario where more than double was spent, the discipline may differ.

Q. What if staff loses company property? Can they be charged for the replacement costs? Can this expense be taken out of reimbursement requests?

A. It is very problematic to do this. There are laws and regulations in California that limit an employer’s right to withhold from wages any losses incurred on behalf of the business. If someone loses their computer, for example, it’s pretty unlikely – unless they stole it and you can prove it – that you’re going to be able to deduct that from their paycheck (or in this case from their expense reimbursement). The better way to handle that is with insurance.

Q. What if there are no receipts?

A. This is the subject of policy. The best practice is to require receipts over a particular level. The level depends on your situation. Ultimately the question comes down to the ability to prove the expense was incurred. Receipts can be required and will be looked for should the matter be investigated.

Employee Expense Reimbursement: Mileage Reimbursement Concerns

Q. Can a company require an employee to have valid insurance before paying mileage reimbursements?

A. Yes. Insurance is a requirement for driving anyway, so you can require that the employee be legally able to drive. When it comes to cost reimbursements, on the other hand, the cost of insurance itself is a cost of owning and operating an automobile, so it is one of those expenses that – if you use the actual expense method (adding tires, gas, registration, insurance, etc.) – it is an expense to be reimbursed.

Under a mileage rate reimbursement plan it is presumptively reimbursed as part of the total reimbursement amount per mile driven. In general though, you can certainly require someone who is driving on the job to be properly licensed and legally able to drive, which includes having valid insurance.

Q. If the staff incurs a flat tire or cracked windshield, for example, are the costs of these repairs included in mileage reimbursement rate?

A. The answer is that the cost of wear and tear on a car would be an expense of operating the car. If using the IRS mileage reimbursement rate, the presumption is that wear and tear – including flat tires and the like – are already included. In other words, just because the catastrophic event happened while the employee was on the clock doesn’t mean you have to pay for the full cost. If you’re reimbursing on the basis of mileage, leave it at that (as long as the employee is notified that they have the right to use the actual expense method, which would include a portion of the replacement cost of those items, and may or may not be more at the end of the reimbursement period).

Q. If an employee’s job is a floater and is sent from branch to branch locations, the nature of the job is to float. Will mileage reimbursement apply?

A. Yes, actually. You can do it in a number of different ways. You’re obligating the employee to go from place to place to perform her job, so it would apply.

Q. What about parking? What if they cannot produce the receipt?

A. This one is tough because there are often cases where you cannot get a receipt (though less often as parking meters get more sophisticated). This becomes an issue of materiality and an issue of discipline. For example, with a request to reimburse a modest amount of parking meter coins, the best practice is probably to have a policy limiting the total and go ahead with the reimbursement.

Ultimately, even if you don’t go with materiality, you still can’t impose an impossible obligation on your employee. At some level, the employee’s testimony is worth something. For something as modest as parking (assuming a minor amount), the best practice is to pay it and monitor for abuse.

Q. What if we have contracts that specify a mileage reimbursement amount that is slightly less than the amount that would be required under IRS guidelines? Do we have any liability for the difference?

A. Probably not, as long as the mileage reimbursement amount is sufficient that it likely exceeds the actual expense incurred. To be completely safe you could say that employees can submit a document to request actual expenses to be reimbursed if they are higher than the estimated reimbursement given based on mileage and such a document will be considered.

To register for a future webinar, visit CER webinars.

Kevin M. (Casey) Christensen of the Christensen Law Group (CLG) is a trial attorney and business counselor with 18 years’ experience helping clients resolve their disputes. He specializes in employment law, insurance coverage/bad faith, and commercial litigation.