California Mileage Reimbursement Law
Mileage reimbursement in California is governed by both the Labor Code, Section 2802, and the California Code of Regulations, Title 8, Section 13700-13702. If a California employer requires an employee to drive on official company business, it must either provide the employee with a vehicle, for which all expenses are covered, or reimburse the employee for the cost of driving. California law provides some flexibility to employers in determining exactly how to reimburse employees for mileage and driving-related expenses.
Under California law, mileage reimbursement is defined as the amount paid to employees for all the "necessary costs incurred in operating vehicles provided by the employee for work." Mileage reimbursement is not limited to gas costs, but must compensate the employee for additional factors such as depreciation of the vehicle, repairs and insurance expenses. The employee's regular commute is not compensable, unless the employer places restrictions on the employee during the commute, requires the employee to be available for work or directs him to perform work on the journey. California law requires an employer to maintain daily records of reimbursable mileage, and also mandates that reimbursement payments must be made by the end of the month following the month in which the driving occurred or when the employee submitted the claim. In Gattuso v. Harte-Hanks Shoppers, Inc (2007) the court found that there are three acceptable ways that a California employer may reimburse mileage expenses -- the "actual expense" method, the "mileage reimbursement" method and the "lump sum" method.
In the actual expense method, employees must submit detailed expense records to the employer. These records would comprise the actual expenses for each of the reimbursable components of operating a vehicle and would need to include prorated expenses such as tires, oil, insurance and depreciation. The employee would need to calculate the portion of total driving time that was work-related and use that percentage to calculate the prorated amounts. The employee also would provide gas costs. While this method is probably the most accurate, it requires detailed reporting by the employee, and time-consuming fact-checking by the employer.
To lessen the reporting burden somewhat, but still provide equitable reimbursement to employees, employers can use the mileage reimbursement method. This method provides for a monthly reimbursement of expenses based on the Internal Revenue Service mileage reimbursement rate, which the California Department of Labor Standards Enforcement has opined is a reasonable reimbursement rate for all expenses incurred in driving. If employees or the employer disagrees that the rate is acceptable, the payment may differ from the IRS rate -- but the burden is on the complaining party to prove why that should be the case. Under the mileage reimbursement method, records of each mile driven, and the date the driving took place, must still be kept.
The "lump sum" method of reimbursement allows an employer to compensate employees for driving expenses by increasing their overall compensation. This could be a specified payment -- often referred to as an "auto allowance" -- or an increase to the base compensation. If the employer increases the base or commission, it is the employer's responsibility to identify the amount of compensation that is intended to reimburse the employee for vehicle expenses. The lump sum option may be suitable where employees frequently make the same journeys for work-related reasons.