In California, employers are required to fully reimburse you when you use your personal vehicles for business purposes.1 There are 4 ways to calculate the reimbursement:
- lump-sum payments,
- Actual mileage,
- Actual expenses, or
- A mixture of fixed and variable rates.
1. Lump-sum payments
California employers are allowed to use a lump sum payment to reimburse you for job-related vehicle expenses. 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.2
2. Actual mileage
Your employer and you can agree on a per-mile reimbursement rate. You can:
- adopt the mileage reimbursement rate suggested by the IRS or by the California Department of Human Resources (which for 2023 is $0.655 per mile), or
- agree to your own rate.
However, the rate agreed to has to fully compensate you for work-related travel expenses, and you must also be allowed to challenge the rate if you believe that it is inadequate. Plus your mileage reimbursement should not be taxed as income unless your employer pays you more than the current IRS reimbursement rate.
If you use your personal vehicles for business purposes, you will have to track your mileage. This can be difficult to keep up.3
3. Actual expenses
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.
While reimbursements based on the actual expense method is the most accurate, the recordkeeping requirements for this method of reimbursement are onerous. Plus, disputes with your employer can arise over, for example, which auto repair shop you use.4
4. A mixture of fixed and variable rates
A fixed and variable rate reimbursement (FAVR) 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.
Frequently-asked-questions about mileage reimbursements in California
What is included in mileage reimbursements?
- gasoline costs
- vehicle depreciation from wear and tear,
- maintenance and repair costs,
- vehicle registration fees, and
- car insurance.
California’s mileage reimbursements do not include your daily commute to and from the workplace. Plus the reimbursement has to cover only your necessary and reasonable expenses. Unnecessary vehicle expenses do not have be covered.5
Do I get a separate paycheck for mileage reimbursements?
Mileage reimbursements do not have to be paid separately from your wages or other compensation. However, your paycheck does have to show that it includes the mileage reimbursement.6
Can I waive my right to mileage reimbursements?
No. Any agreement that waives your right to full reimbursement of your job-related vehicle expenses is void.7
What is my employer’s mileage reimbursement policy?
It is up to your employer and you to agree on which reimbursement policy will be used. If a mileage reimbursement system is used, you have to agree on the rate per mile. This is generally set out in your:
- employment contract or
- employee handbook.
Which method of mileage reimbursement is the best?
They all have advantages and disadvantages.
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.
Many people prefer the FAVR system since the mileage rate can change based on local gas prices. This adds to the accuracy of a FAVR reimbursement mechanism.
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 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 your employer does not correct the discrepancy, you can file a wage and hour lawsuit. If your employer’s failure or refusal to reimburse you for travel expenses is a regular practice, you can file a class-action lawsuit.
What is the current IRS reimbursement rate?
Purpose of using your personal vehicle
IRS reimbursement rate
|Business use||$0.655 per mile|
|Active-duty members moving or getting medical treatment||$0.22 per mile|
|In service of a charity||$0.14 per mile 8|
For more information, refer to the following:
- 6 Commonly Asked Questions About Employee Mileage Reimbursement – U.S. Chamber of Commerce.
- Mileage Reimbursement: What You Need to Know – Business News Daily.
- 2023 Mileage Reimbursement Rate for Use of Personal Vehicle – California State Controller’s Office.
- Travel Reimbursements – California Department of Human Resources.
- Standard Mileage Rates – Internal Revenue Service (IRS).
- California Labor Code 2802(a) LAB, which 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. You are entitled to reimbursement even if your employer’s orders were unlawful, unless you believed that they were unlawful while doing them.
- Gattuso v. Harte-Hanks Shoppers, Inc., (2007) 42 Cal.4th 554.
- 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.
- See note 2.
- Same. California Labor Code 2804 LAB.
- IRS issues standard mileage rates for 2023; business use increases 3 cents per mile, IRS.