In California, employers are required to reimburse you when you use your personal vehicles for business purposes. There are 4 ways to calculate the reimbursement:
- lump-sum payments,
- reimbursement based on actual mileage,
- reimbursement based on actual expenses, or
- reimbursement based on a mixture of fixed and variable rates.
Regardless of the method, you are entitled to full compensation. Many companies rely on the current IRS reimbursement rates:
Purpose of using your personal vehicle
IRS reimbursement rate
|Business use||$0.665 per mile|
|Active-duty members moving or getting medical treatment||$0.22 per mile|
|In service of a charity||$0.14 per mile|
What is the mileage reimbursement law in California?
California employment law requires all employers in the state to pay you back for any business expenses that you incurred. In addition to other, related expenses, this includes the costs associated with using your personal vehicle for work-related purposes.
California Labor Code section 2802(a) LAB makes employers reimburse you for all necessary expenses or losses incurred in:
- direct consequence of the discharge of your duties, or
- your obedience to the employer’s directions.1
You are entitled to reimbursement even if your employer’s orders were unlawful, unless you believed that they were unlawful while doing them.2
These reimbursements include the costs of using your 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 your 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 you are on the job. This does not include your 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 your 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 your 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 your necessary and reasonable expenses.5 Unnecessary vehicle expenses may not be covered.
It is up to your employer and you 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 your right to full reimbursement of your job-related vehicle expenses is void.6 Such an agreement also must give you 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 you for job-related vehicle expenses.8 9 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 your expenses.
The lump-sum method is generally used if you drive your 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 you have to do.
However, fluctuating gas prices can make a lump sum payment inadequate. In these cases, you can challenge the amount and demand full reimbursement.
Your employer and you can also agree on a per-mile reimbursement rate.9 You 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 your own rate.
However, the rate agreed to has to fully compensate you for work-related travel expenses. You must also be allowed to challenge the rate if you believe that it is inadequate.
If you use your personal vehicles for business purposes, you will have to track your mileage. You then report the number of business miles driven to your employer. The employer then reimburses you 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. Also, if you drive less on the job, you are compensated at a lower rate than workers 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, if you drive only a few miles on the job, you still have to pay an amount similar to those who drive a great deal on the job.
Note that your mileage reimbursement should not be taxed as income unless your employer pays you more than the current IRS reimbursement rate.
Reimbursement of actual expenses
The expense reimbursement can also be for the actual expenses incurred by you.11 This method of calculation requires you 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 you 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 you drive,
- whether you 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 you take 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. If you drive only a few miles, you will suffer the same expenses for fixed costs as workers who drive a lot of miles. Without a FAVR system to account for this, if you go only a few miles, you will be reimbursed far less than workers who drive many miles.
What is the IRS mileage reimbursement rate?
Effective January 1, 2023, the IRS mileage reimbursement rate is $0.665 per mile for the business use of a personal car, van, pickup truck, or panel truck. This is an increase of 3 cents from July 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?
If your employer is underpaying you for the personal use of your vehicles, you can challenge the amount that has been reimbursed. By using evidence of your actual costs, you can show that the reimbursement has been inadequate.
If the employer does not correct the discrepancy, you can file a wage and hour lawsuit. If the employer’s failure or refusal to reimburse you for travel expenses is a regular practice, you can file a class-action lawsuit.
- California Labor Code 2802(a) LAB.
- Gattuso v. Harte-Hanks Shoppers, Inc., (2007) 42 Cal.4th 554. Espejo v. The Copley Press, Inc. (. ), Oliver v. Konica Minolta Business Solutions U.S.A., Inc. ( See also Division of Labor Standard Enforcement (DLSE) Opinion Letter No. 1993.02.22-3.
- Gattuso v. Harte-Hanks Shoppers, supra.
- Same, at 568.
- California Labor Code 2804 LAB.
- Gattuso v. Harte-Hanks Shoppers, Inc., supra at 569-570.
- Same, at 570.
- See California Department of Human Resources, Travel Reimbursements.
- Gattuso v. Harte-Hanks Shoppers, Inc., supra at 568-569.
- Same, at 568.
- IRS issues standard mileage rates for 2023; business use increases 3 cents per mile, IRS.