We’re considering changing our meals reimbursement policy from reimbursement of actual costs to a standard meal allowance for out of state travel. The objective is to make the expense fully deductible to the employer for tax purposes. What is the best way to go about this and are there any specific concerns? What (if any) are key considerations on the employee side? We have offices in MA, NY, PA, and CA.
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There is detailed information regarding the reimbursement of business and travel expenses under the topic titled Business/Travel Expenses on HR.BLR.com.
Customarily, employers pay the cost of three meals a day for an employee who is traveling on business. In some cases, an employer may have a policy of reimbursing the employee for the reasonable costs of a meal, and in other cases employers set a dollar limit for a day, or a dollar limit for each meal. For example, an employee might get $50 a day–based on $10 for breakfast, $15 for lunch, and $25 for dinner.
A business and travel expense policy will often differentiate between employee meals while traveling, and reimbursement for the expense of a business meal where the employee is entertaining a client, potential client, or vendor. Per diem or per meal costs generally don’t apply in these situations, and many companies have a policy that requires the most senior employee present at the meal to pay the bill and then submit it for reimbursement as a business entertainment expense.
We are not aware of any special rules in Massachusetts, New York, or Pennsylvania that would prevent an employer from establishing a per diem rate for reimbursing employees for meals while traveling on business. The policy should be well-communicated so employees understand what the per diem is before they travel. If exceptions will be made for travel to certain high-cost cities, e.g., New York or Los Angeles, this should be clearly spelled out in the policy.
You also asked specifically about California. California law requires employers to reimburse employees for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of their duties or while obeying the directions of the employer (CA Labor Code Sec. 2802). Proposed Division of Labor Standards Enforcement regulations provide that the Internal Revenue Service (IRS) mileage reimbursement rate is a reasonable rate for reimbursing employees for vehicle expenses they incur in connection with work.
So long as the per diem for meals is reasonable, employers should feel comfortable setting a limit on reimbursements for meals provided the per diem is communicated in advance so employees know what is permitted.