California Mileage Reimbursement – How Does It work?

Posted on August 19, 2022

In California, employers are required to reimburse workers who use their personal vehicles for business purposes are compensated. There are 4 ways to calculate the reimbursement:

1. lump-sum payments,
2. reimbursement based on actual mileage,
3. reimbursement based on actual expenses, or
4. reimbursement based on a mixture of fixed and variable rates.

Regardless of the method, employees are entitled to full compensation.

What is the mileage reimbursement law in California?

California employment law requires all employers in the state to pay employees back for any business expenses that the employee incurred. In addition to other, related expenses, this includes the costs associated with using the employee’s personal vehicle for work-related purposes.

California Labor Code section 2802(a) LAB makes employers reimburse employees for all necessary expenses or losses incurred in:

• direct consequence of the discharge of the employee’s duties, or
• the employee’s obedience to the employer’s directions.¹

The employee is entitled to reimbursement even if the employer’s orders were unlawful, unless the employee believed that they were unlawful while doing them.²

These reimbursements include the costs of using the employee’s personal vehicle for business purposes.³ These costs are not necessarily restricted to the cost of gasoline for the vehicle. They also include:

• vehicle depreciation from wear and tear,
• maintenance and repair costs,
• vehicle registration fees, and
• car insurance.

Reimbursements required by California Labor Code 2802(a) LAB do not have to be paid separately from the employee’s wages or other compensation. However, there does have to be a means or method to apportion and to label this enhanced compensation as reimbursement.⁴

Does this include my daily commute to and from work?

No, California’s mileage reimbursement requirement only covers business travel that occurs while the worker is on the job. This does not include the employee’s daily commute to and from the workplace.

What are the different ways of calculating reimbursement?

Under California law, there are 4 different ways to calculate an employee’s vehicle expenses incurred while on the job:

• a “gas stipend” or regular lump sum payment that covers all the costs of using the vehicle,
• reimbursement based on the number of miles driven,
• reimbursement based on the employee’s actual expenses, and
• a hybrid calculation that uses fixed rates for certain expenses, like insurance, and variable rates for others, like fuel.

All of these methods are only tasked with covering the employee’s necessary and reasonable expenses.⁵ Unnecessary vehicle expenses may not be covered.

It is up to the employer and employee to agree on which reimbursement policy will be used. If a mileage reimbursement system is used, the parties have to agree on the rate per mile. This is generally set out in the employment contract or employee handbook.

However, any agreement that waives an employee’s right to full reimbursement of their job-related vehicle expenses is void.⁶ Such an agreement also must give employees the opportunity to challenge the sufficiency of the reimbursement.⁷

Lump-sum payments or gas stipends

California employers are allowed to use a lump sum payment to reimburse employees for job-related vehicle expenses.⁸ Also referred to as

• a “gas stipend,”
• a “car allowance,” or
• a “per diem,”

this is a regular payment, often made monthly, of a set amount that has been deemed adequate to cover the worker’s expenses.

The lump-sum method is generally used for employees who drive their personal vehicles on the same routes every day or week. When the amount being driven remains the same, lump-sum payments can be ideal because they reduce the amount of recordkeeping that the parties have to do.

However, fluctuating gas prices can make a lump sum payment inadequate. In these cases, undercompensated workers can challenge the amount and demand full reimbursement.

Mileage reimbursement

Employers and their employees can also agree on a per-mile reimbursement rate.⁹ The parties can adopt the mileage reimbursement rate suggested by the U.S. Internal Revenue Service (IRS) or by the California Department of Human Resources, or can agree to their own rate.

However, the rate agreed to has to fully compensate the employee for work-related travel expenses. The employee must also be allowed to challenge the rate if he or she believes that it is inadequate.

For the last half of 2022, both the IRS and the California Department of Human Resources suggest mileage reimbursement rates of $0.625 per mile.¹⁰ They both increased the reimbursement rate 4 cents from the first half of 2022.

Workers who use their personal vehicles for business purposes will have to track their mileage. They then report the number of business miles driven to their employer. The employer then reimburses the worker based on the miles driven on the job and the agreed-upon rate.

The mileage reimbursement method is more accurate than a lump sum agreement or gas stipend. However, it still does not account for rising or falling gas prices. It also compensates workers who drive less on the job at a lower rate than those who drive more.

This is because some of the vehicle expenses are fixed, like insurance rates, and do not change much based on miles driven. Nevertheless, employees who drive only a few miles on the job still have to pay an amount similar to those who drive a great deal on the job.

Reimbursement of actual expenses

The expense reimbursement can also be for the actual expenses incurred by the employee.¹¹ This method of calculation requires the employee to record the exact amount of all of the losses paid while driving on the job, including:

• the cost of refilling the tank after every day of work,
• year-over-year changes in the vehicle’s resale value to determine depreciation, and
• maintenance costs from work-related driving.

This often requires logging the number of miles driven on the job and off of it. This lets the worker show what percentage of the miles were for business purposes, and therefore what percentage of the maintenance costs should be reimbursed.

While reimbursements based on the actual expense method is the most accurate, the recordkeeping requirements for this method of reimbursement are onerous. Additionally, there may be questions about whether certain expenditures are necessary and reasonable.

For example, disputes can arise over:

• the value of the vehicle that the employee drives,
• whether the employee can use premium gasoline or not,
• the vehicle’s gas mileage,
• the appropriate deductible for a car insurance policy, which can affect its cost and therefore the reimbursement amount, and
• which auto repair shop the employee takes the vehicle to for maintenance.¹²

Fixed and variable rate reimbursement, or FAVR

Another reimbursement calculation method is a fixed and variable rate reimbursement, or FAVR. This splits the fixed costs of using a personal vehicle for business use, like insurance rates, from the variable costs, like gas. The fixed costs are then reimbursed on an individual basis, to an agreed-upon amount. The variable costs are reimbursed based on an agreed mileage rate.

That mileage rate can change based on local gas prices. This adds to the accuracy of a FAVR reimbursement mechanism. Gas is reimbursed based on

• local prices, rather than
• state or national averages.

FAVR systems also fix the discrepancies between employees who drive a lot for work and those who do not. Workers who only drive a few miles will suffer the same expenses for fixed costs as those who drive a lot of miles. Without a FAVR system to account for this, drivers who only go a few miles will be reimbursed far less than those who drive many miles.

What is the IRS mileage reimbursement rate?

Effective July 1, 2022, the IRS mileage reimbursement rate is $0.625 per mile for the business use of a personal car, van, pickup truck, or panel truck. This is an increase of 4 cents from January of 2022.¹³

The mileage reimbursement rate is different for medical or moving purposes for active-duty members of the U.S. Armed Forces. For them, the rate is $0.22 per mile, which is a 4-cent increase from January of 2022.¹⁴

For personal vehicles being driven in the service of charitable organizations, the reimbursement rate is $0.14 per mile.¹⁵

These reimbursement rates are optional for employers to use. They are guidelines that are designed to approximate the fixed and variable costs of using a personal vehicle for business purposes across the country. Because the IRS rate is a national average, though, it may not reflect the costs of using a personal vehicle in California.

What if my employer is underpaying my personal vehicle expenses?

Employers who underpay their employees for the personal use of their vehicles can challenge the amount that has been reimbursed. By using evidence of the employee’s actual costs, workers can show that the reimbursement has been inadequate. If the employer does not correct the discrepancy, workers can file a wage and hour lawsuit. If the employer’s failure or refusal to reimburse workers for travel expenses is a regular practice, workers can file a class-action lawsuit.

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