Wage and Hour: Labor Commissioner Proposes Rules for Employee Expense Reimbursement

The California Labor Code requires employers to repay employees for all necessary expenditures employees incur in performing their jobs. However, the law doesn’t provide guidance as to what precisely must be reimbursed and at what rates, or whether paying an increased salary or commission satisfies the reimbursement requirement. Now, the labor commissioner has issued proposed regulations to clarify the law, and they will likely undergo revisions before being finalized.

Mileage Reimbursement

The proposed rules state that with respect to reimbursing employees for the business use of their personal vehicles—which does not include commute mileage—the IRS standard vehicle mileage reimbursement rate is presumed to be a reasonable 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 paid when wages are due or at least once a month and 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.

The proposed rules bar employers from taking any deductions 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 his or her Labor Code Section 2802 reimbursement rights by filing a claim with the state Division of Labor Standards Enforcement (DLSE) or by filing a lawsuit. The DLSE can also file its own action to recover unreimbursed expenses on an employee’s behalf. 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 labor commissioner’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 California appeals court 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.

Additional Resource:

Proposed Labor Code Section 2802 Travel Reimbursement Regulations