Employer’s Gas & Mileage Reimbursement Obligations

Under California Labor Code section 2802, employers are required to reimburse their employees for expenses they necessarily incur in performing their job duties. If an employee’s job duties require the employee to use his or her car, the employer must reimburse the employee for automobile expenses such as mileage, gas, and wear and tear.

In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court held that employers could adopt different types of expense reimbursement plans under California law such as lump sum payments, the IRS Standard Mileage Rate, or higher wages to compensate for auto expenses. Whatever the method, the Court stated that the expense plan must reimburse for all costs incurred — even the tax effect of using higher wages to compensate for car expense. The employer must communicate to its workers the method or formula used to reimburses for car expenses.

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.

Effective January 1, 2014, the IRS Standard Mileage Rates for the use of a vehicle such as a car, van SUV or pickup are:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

California Code of Regulations, Title 8, Sections 13700-13706 determine reimbursement for work-related use of a personal vehicle, and 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.

Mileage reimbursements must be made when wages are paid or at least once per calendar month, as determined by the employer. Any payment must be made no later than the end of the calendar month following the month in which the expenses were incurred. Any payment processed on an employee’s normal payroll check must reflect the reimbursement amount separately. Employers may not take any deductions from the reimbursement amount.