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CA Law On Mileage Reimbursements

California law on mileage reimbursements is fairly basic and straight forward. Reimbursement for all miles, other than commuting, should use the IRS rate unless the employer can substantiate a lower rate.  In special cases an employer can justify a lower rate for employees who routinely drive 12,000 miles or more in a year and also have a higher mileage vehicle.  Unless there are a lot of miles, this is not generally worth the effort. The California Labor Code Section 2802(a) and Title 8 of the California Code of Regulations determine reimbursement for work-related use of a personal vehicle. Please take note of the bold  areas. Labor Code Section 2802 states that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.” Subdivision (c) of Section 2802 defines “necessary expenditures or losses” to include “all reasonable costs.”

When an employee is required to use his or her personal vehicle for work-related activities, the employer must reimburse the employee for expenses related to the use of the vehicle. (Note that this does not include use of a personal vehicle to commute between home and work.)

A common practice to reimburse employees is the mileage reimbursement method. This method requires employees to keep track of mileage for work-related vehicle use. The employer then multiplies the number of miles by the current Internal Revenue Service (IRS) mileage reimbursement rate to calculate the amount owed to the employee. This rate takes into account factors such as depreciation, maintenance and repairs, and actual fuel costs.

Title 8 further outlines the following requirements:Employers must compute and pay mileage reimbursement when wages are paid, or at least once per calendar month, as determined by the employer. All such payments must be made not later than the end of the calendar month following the calendar month in which the expenses were incurred, unless the employee fails to provide the employer with the records of the number of miles driven for the reimbursement period, in which case the reimbursement must be made no later than the month following the month in which the employee provides the employer with the records for the mileage claimed.

No deductions may be taken from any amounts paid to employees as mileage reimbursements. At the time of payment, the employer must provide an itemized statement in writing, explaining the computation of the mileage reimbursement.

Employers must keep daily mileage records and maintain these records for at least three years.

If an employer believes an employee’s mileage reimbursement rate should be less than the IRS rate, the burden is on the employer to prove that the employee’s actual expenses are less. Similarly, any employee who believes his or her actual expenses are more than the IRS rate must provide proof (See, Title 8, California Code of Regulations, Sections 1300 to 13706).

Further clarification related to employee personal vehicle expense reimbursement is provided in Gattuso v. Harte-Hanks Shoppers, Inc. (2007). In this decision, the California Supreme Court outlined three possible methods for paying for automobile expenses, with mileage reimbursement being one. The other two methods include the actual expense method and the lump-sum payment method. Although the actual expense method is the most accurate, record keeping can be burdensome for employees. Using the lump-sum method, the employer pays a fixed amount for personal vehicle expenses (e.g., a car allowance) based on the employee’s anticipated job duties.  The Supreme Court noted that the lump-sum method, if used, must provide full reimbursement to the employee.

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Author

Scott Palka
CFA CPA CMA MBA, Pro Back Office Partner/Consulting CFO
Scott holds a Master of Business Administration from the University of Denver’s Daniels School of Business, a Bachelors’ of Science, with honors, from the University of Illinois, and an Associate of Science in Chemical Technology from the College of Lake County. Scott is a Chartered Financial Analyst, a Certified Management Accountant, and a Certified Public Accountant. During his career, Scott has led financings from $1 million to $370 million, provided merger & divestiture analysis, deal structure and execution, led several major financial and operational system implementations, and put six sigma process improvements into action. Scott has 4 kids and loves spending time with his family. He is an enthusiastic cyclist who rides for both fun and charity.

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