California employers must reimburse employees for reasonable business expenses. While there are many reimbursable business expenses, travel expenses are one of the most common. Here’s an overview of covered employee travel expenses.
California Labor Laws on Employee Travel Expenses
California Labor Code Section 2802(a) states, “an employer shall indemnify his/her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his/her duties, or of his/her obedience to the directions of the employer.”
The test for recovery under Section 2802 is whether the expense or loss was incurred “within the course and scope of employment.” In determining whether, for purposes of indemnification, an employee’s acts were performed within the course and scope of employment, the courts have decided that an employer is vicariously liable for risks broadly incidental to the enterprise.
In order to be compliant with California labor laws surrounding employee travel expenses, employers should implement a policy that specifically outlines the types and scope of covered travel expenses. “Work-related expenses” should be clearly defined and tailored to each employer’s business.
What Kinds of Travel Expenses May Be Covered?
Travel expenses typically include any kind of transportation and accommodation expenses that may be incurred when going on a business trip. Expenses may be fully or partly reimbursable. Types of reimbursable travel expenses include, but are not limited to, the following:
- Legal document expenses
- Air, train, ship, or other transportation fares
- Necessary medical expenses (vaccinations)
- Local transportation during trips (taxi or ride-share fares, rental cars, etc.)
- Other minor or per-diem expenses that have been approved by an employee’s manager (meals, business materials)
A procedure should be in place to define exactly what is covered and what isn’t, as well as any caps in coverage. Explicit wording about how much needs to be approved ahead of time is also crucial.
In addition to these high-level travel expenses, day-to-day driving expenses, as related to the business, are also reimbursable. For example, if your employee travels frequently for customer meetings, the mileage to and from the client’s location would be eligible for reimbursement.
What are the Mileage Rates for Reimbursement?
In December 2018, The Internal Revenue Service issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Since January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) shifted. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. Click here for an overview of mileage reimbursement rates. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Notice 2019-02, posted on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
What Should Be Covered in Your Reimbursement Plan?
Page 15 of IRS Publication 15, (Circular E), Employer’s Tax Guide, states that expense reimbursements do not have to be included in an employee’s wages if the business has an “accountable” plan.
In order to have an accountable plan, an expense reimbursement policy or advance payment program must meet the following three conditions:
- Business connection: The expense must occur in the performance of services as an employee of the employer.
- Substantiation: The employee must substantiate his or her business expenses by providing the employer with evidence of the amount, time, place, and business purpose of the expense. The employee also must submit business expenses within a reasonable period of time after they occurred.
- Returning excess amounts: If any amounts the employer pays to the employee exceed the amounts the employee spent, the employee must return excess amounts to the employer within a reasonable period of time.
There are many best practices for ensuring successful implementation of a travel and expense policy. These include ensuring that you have senior management review and approve the policies you are about to implement, keeping the policy simple and focus on adoption then enforcement. There are many benefits to having a clear-cut employee travel expense policy in place. Let us know if we can help with this or any other matters related to employment law.