If you are a business owner or a manager operating in the state of California, then understanding California mileage reimbursement laws is imperative. As with any other law, it can seem a bit confusing at first. But, don't worry - we have you covered!
We've dived deep into California labor code 2802 and mileage reimbursement to bring you the essential data to stay compliant and treat your teams with the respect they deserve. And we've done so in every day and easy-to-understand language, so nothing remains unclear.
Is Mileage Reimbursement Required in California?
We first need to clarify the legislation around mileage reimbursement in California and whether it's required in this state. The answer to this question is yes, employees are entitled to full compensation if they use personal vehicles for business purposes.
Not reimbursing your team properly can be costly, so let's take a deeper look at how mileage reimbursement is defined under California law.
California Mileage Reimbursement Law in 2023
According to California employment law, employers are required to compensate their workers for any business expense that the worker incurred. This state's strict regulations are aiming to protect workers from carrying the burden of work-related expenses. Think of it this way - you have to repay your staff for expenses that were incurred to help run your business.
These expenses include the costs of using a personal vehicle for work-related purposes too. For example, if you've sent an employee to pick up supplies for work from a store, you are responsible for reimbursing them for both the supplies purchased and the mileage driven to complete this task.
California Labor Code: Section 2802 on Mileage Reimbursement
So, what Is California law for mileage reimbursement? The CA labor code 2802 states that the employers must reimburse their workers for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties". Needless to say, there are consequences if an employer fails to do so. In fact, they can face a wage and hour lawsuit.
The legislation defines "necessary expenditures or losses" as "all reasonable costs." For example, it states that these costs can include attorney's fees if an employee needs to enforce their rights.
What Reimbursement Does Labor Code 2802 Require?
As we've seen, the main requirement of this regulation is for the expense incurred to be both reasonable and necessary for the employee to do his/her job to be compensated under Labor Code 2802.
More work-related expenses are eligible to be reimbursed under this legal framework:
- Travel expenses
- training/education costs
- Fees for taking part in conferences
- Costs incurred by using a personal cell phone to perform job duties
- Work uniform costs
- Driving costs which include mileage reimbursement for the mileage driven and paid tolls
What Is Considered to Be Business Mileage?
Now that we've clarified the most common business-related expenses that can be reimbursed, it's time to also what constitutes work-related mileage. To help you get a clear picture, we'll list some of the most prevalent forms of travel that are eligible for reimbursement:
- Meetings and visits with clients and customers
- Travels to a temporary job site
- Providing at-home services (for example, home healthcare)
- Buying workplace supplies
- Drives to the bank to perform work-related transactions
- And other business-related errands
It's best to include this information in your travel policy. This way, you'll help your employees understand what types of travel can be compensated.
How Can You Calculate Employee's Reimbursement Under Labor Code 2802?
If you're operating a business within the borders of California, there are four approved ways to calculate vehicle expenses an employee has incurred while on the job. It's actually the California Supreme Court that found them to be in line with Labor Code 2802 in Gattuso v. Harte-Hanks Shoppers. These four ways boil down to:
- Reimburse mileage driven
- Reimburse the actual expenses
- Lump sum payments
- FAVR: fixed and variable rate reimbursement
Let's explore in more detail how can you comply with California mileage reimbursement regulations:
Reimbursement Based on the Mileage Driven
Essentially, this method comes down to employees logging all work-related mileage to be compensated at the company's mileage rate. Typically, businesses use the standard IRS mileage rate to calculate vehicle expenses. This is a very popular reimbursement method as it protects both the employer and the employee.
Bear in mind that in most cases, by paying less than the current IRS rate, your company violates section 2802.
To pay less than the IRS suggests legally, you'll have to prove that the employee's vehicle costs are less than the established IRS rate, which is a strenuous task.
This is a two-way street. If an employee feels that their expenses are higher than the rate issued by the IRS, they too, need to prove that the vehicle operating costs exceed it.
Reimburse Actual Expenses
As its name suggests, this calculation method is based on employers reimbursing their workers for the expenses they've incurred. It requires employees to record all the exact losses they've paid while using their personal vehicles for work-related purposes. These losses include:
- Refilling the tank
- Depreciation - changes in the vehicle's resale value year-over-year
- Costs of maintenance
This method is the most accurate of all, but it's also the most cumbersome. The recordkeeping requirements for it are time-consuming for the employee. Additionally, disputes may arise over the labor code 2802's statement that the expenditures need to be reasonable and necessary.
For example, the type of gasoline the employee uses, like premium one, can be challenged. The same goes for the repair shop, where they take their vehicle for maintenance. Obviously, this method, although the most precise one, can cause headaches to both parties involved.
Lump Sum Payments
This calculation is also known as a "gas stipend." It comes down to employers paying employees a fixed amount to cover the costs of using their vehicles. The payment is most often made monthly. In this scenario, employees don't have to log the miles driven, so it can require less effort from their side to receive the compensation they're entitled to.
This method is frequently chosen as it is relatively simple for both sides involved. It only required them to agree on the set price. Employees receive a car allowance, a gas allowance, or a per diem payment.
Still, employers need to be careful about the reimbursement amount. It has to fully compensate the employee for the actual costs of operating the vehicle. Otherwise, the employer may find themselves violating the law.
There is yet another thing you need to be aware of - fluctuating gas prices we are seeing right now can affect the lump sum's value and make it inadequate. According to the law, workers have the right to question the amount they are being given, and demand for it to be aligned with the gas market's prices.
FAVR: fixed and variable rate reimbursement
FAVR reimbursement is a hybrid model that splits the costs of using a personal vehicle for business-related purposes into fixed and variable expenses. Fixed costs include insurance rates, while variable costs encompass gas prices.
The advantage of this calculation lies in its accuracy, as it reflects the actual and current prices. Aside from that, instead of using the state or national averages, gas prices are compensated according to local prices.
When properly implemented, the FAVR model can avoid over- or underpayment to workers. Bear in mind that according to the IRS, these payments need to be made at least quarterly,
It's also important to know that it is non-taxable, just like the IRS mileage rate.
California Mileage Reimbursement: Final Thoughts
California has one of the strictest laws on vehicle reimbursement in the U.S. Now that you've read the entire article, it's clear that you are required to fairly compensate your team for reasonable and necessary costs they've incurred while using their vehicles for business-related purposes.
While that part is non-negotiable, you can choose between calculations that comply with CA labor code 2802 and mileage reimbursement legislation. The most important takeaway when choosing a method is to ensure you're not under compensating your employees, especially with today's fluctuating gas (and other vehicle-related) prices.
If you're new to mileage reimbursement and need more resources, we've prepared a comprehensive guide to employee mileage reimbursement.
Reimburse Mileage Properly: Find a Reliable Partner to Support Your Business
Mileage tracking software can be an indispensable ally in reimbursing your teams properly. But, navigating today's app market is beyond challenging. In a sea of apps for everything you may think of, from accounting to gardening, it can feel overwhelming and difficult to understand which app is the right one for your specific needs.
To stay compliant and nurture accountability in your employees, Timeero has designed mileage tracking software to help you accurately record your staff's mileage and a lot more.
We built our app with our users in mind. It has numerous functionalities like checking employees' location at any given time (both in real-time and retroactively). We aim to help you streamline your business processes and cut unnecessary costs.
Book a free demo or start your 14-day free trial today to see what sets Timeero apart from its competitors and why so many businesses are choosing us as their partners.
California Mileage Reimbursement Frequently Asked Questions
What Is the IRS Mileage Rate for 2023?
The IRS rate for 2023 was set at 65.5 cents per business miles driven.
Bear in mind that this rate varies depending on medical or moving purposes for active members of the U.S. Armed Forces.
Can Employees Waive Their Rights to These Reimbursements?
No, employees cannot waive their rights to these compensations. Employee contracts can contain a provision that tells them they have no right to reimbursement, but that kind of provision is null, and the court won't enforce it.
Who Is Eligible for Reimbursement Under California Labor Code 2802?
There are no special requirements in the terms of occupation or salary range regarding Califonia mileage reimbursement. What's important under this state's Labor Code 2802 is the nature of the expense incurred. To be eligible for compensation,
Are the IRS Rates Required by the Law?
No, the IRS mileage reimbursement rates are optional. Most businesses use them as a guideline to what is appropriate compensation for using a personal vehicle for business purposes. However, the rate that the IRS issues every year reflects the national average, so it may not be best suited for the costs incurred in California.
Is Daily Commute to and From Work Included in the Compensation?
No, employees' daily commute isn't covered by California's mileage reimbursement requirement. According to the law, only the business travel that occurs while the employee is on the job has to be compensated.
Are Labor Code 2802 Mileage Reimbursements Taxable as Income?
Reimbursements for business-related expenses can be taxable or tax-deductible depending on several factors. If the following criteria are met, work expense isn't taxable:
- The expense was both ordinary and necessary for the job to be executed
- In case the reimbursement was excess, the extra amount was returned to the employer in a reasonable timeframe
- The cost of the expense was verified by the employee within a reasonable timeframe
Note that all of the above-listed conditions need to be met. Otherwise the reimbursement is considered taxable income.