California Laws - Personal Vehicle Expenses

Personal Vehicle Reimbursement Expenses

California law requires employers to reimburse employees for all necessary expenses incurred due to business reasons. The most common type of on-the-job expense is the cost of using a personal vehicle. Although there are several different ways an employer can go about reimbursing workers for vehicle use, the most common is the mileage reimbursement method, where the employer reimburses a certain amount per mile driven – generally at the rate set by the IRS, which is currently 53.5 cents per mile.

During a recent case in the California Supreme Court, the Court provided guidance for the permissible methods employers can use to reimburse for personal vehicle use:

• Mileage reimbursement based on IRS mileage rate - this method is presumed to reimburse the employee for all actual expenses. The Court also held that the reimbursement rate can be negotiated by parties if it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate. The Court also warned that employee cannot waive the right to be fully reimbursed for their actual expenses.

• Actual expense method of reimbursement - this method is the most accurate, but it is also the most burdensome for both the employer and the employee. Under the actual expense method, the parties calculate the automobile expenses that the employee actually and necessarily incurred and then the employer separately pays the employee that amount. The actual expenses of using an employee’s personal automobile for business purposes includes fuel, maintenance, repairs, insurance, registration, and depreciation.

• Mileage reimbursement method- under this method, the employee only needs to keep a record of the number of miles driven for job duties. The employer then multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile. The mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. It is important to note that while this amount can be negotiated, the employee still is unable to waive their right to reimbursement of their actual costs as mentioned above.

• Lump sum payment method- under this method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays an agreed fixed amount for automobile expense reimbursement. This type of lump sum payment is often labeled as a per diem, car allowance, or gas stipend. Employers paying a lump sum amount have the extra burden of separately identifying and documenting the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

Employers are not required to pay for mileage driven commuting to or from work. The same goes for other transportation costs incurred in commuting to and from home and work. If an employee travels to a separate site directly from home without driving to their worksite first, the employer can deduct the normal commute hours from the total miles reimbursed.

Lauren Sims, the author of this article, is an eqHR Solutions Principal Human Resources Consultant.

When your business requires professional Human Resources or Payroll advice to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no obligation consultation.

eqHR Solutions provides professional, tactical and strategic, human resources support, ADP payroll product implementation/training and payroll processing services for businesses throughout Southern California.