The California Division of Labor Standards Enforcement ("DLSE") recently issued proposed regulations addressing employer reimbursement of employee travel expenses. Labor Code section 2802 requires employers to "indemnify" employees for "all necessary expenditures or losses" they incur in performing their job duties. The proposed regulations are intended to explain the requirements and methods by which employers may reimburse employees for work-related travel expenses necessarily incurred in connection with use of vehicles and overnight travel. If adopted, the proposed regulations will have an immediate impact on the process of employer reimbursement for employee travel expenses.
According to the DLSE, the proposed regulations are needed because there is insufficient judicial authority explaining the meaning of Labor Code section 2802 and its obligations for employers. The lack of definitive guidance under the statute has caused some confusion among employers with respect to the types of expenses that must be reimbursed to employees, the rates of reimbursement, and whether additional compensation satisfies the reimbursement requirements. The proposed regulations provide specific rules for the payment and recordkeeping of vehicle and per diem expenses necessarily incurred by employees in performing their job duties. These proposed regulations also attempt to clarify the extent to which other types of incidental travel expenses are reimbursable under Section 2802, such as, tolls, parking, rental car costs, laundry, mailing, telephone, shipping of baggage, or work-related material, and commuter transportation costs.
Certain issues arising under Labor Code section 2802 remain unresolved. First, despite the DLSE’s attempts at clarification, employers still are likely to face continuing questions as to whether specific expenses claimed by employees are reimbursable, i.e., "necessarily incurred" for work-related purposes. To minimize confusion and the potential for disputes, employers should strive to develop policies which set forth clear guidelines on the types and amounts of travel expenses which may be reimbursed. Second, while the proposed regulations, if adopted, appear to prohibit employers from paying employees increased compensation in lieu of per diem payments or reimbursement for actual expenses, this issue is currently under review and will be decided by the California Supreme Court. See Gattuso v. Harte-Hanks Shoppers, Inc. (2005) 133 Cal.App.4th 185, rev. granted, 40 Cal.Rptr.3d 750 (Cal. 2006).
The full text of the proposed regulations are available on the DLSE’s Web site here
The DLSE is currently accepting written comments on the proposed regulations, and has scheduled a public hearing for February 7, 2007, in San Francisco.
The following charts summarize the key provisions of the proposed regulations with respect to reimbursement of vehicle and per diem expenses:
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Vehicle Expenses Necessarily Incurred In Connection With Work (Employee Provides Vehicle) |
Vehicle Expenses Necessarily Incurred In Connection With Work (Employer Provides Vehicle) |
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Covered Work-Related Expenses |
Gas and oil purchases, lease payments, garage rent, repairs, tires, depreciation, DMV fees, insurance and licenses |
Gas and oil purchases, lease payments, garage rent, repairs, tires, depreciation, DMV fees, insurance and licenses |
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Reimbursement Rate |
*The IRS mileage rate for 2007 is 48.5 cents/business mile. |
Actual costs |
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Documentation Verifying Expenses |
Employer must maintain record of daily mileage in indelible form with day, month & year. Employer may require employees to record and submit mileage information. |
Written reimbursement claim with receipts may be required of employee |
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Method & Timing of Reimbursement |
When wages are paid or at least once per calendar month, no later than end of calendar month following expenses; payable by check with detachable stub either showing calculation with IRS rate or attaching copy of reimbursement claim noting amount paid; no deductions allowed; not taxable as wages |
When wages are paid or at least once per calendar month, no later than end of calendar month following expenses or provision of records to employer; payable by check with detachable stub either showing computation of reimbursement, noting time period and specific items paid, or attaching copy of reimbursement claim with notation of amount paid; no deductions allowed; not taxable as wages |
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Recordkeeping & Inspection |
Written claim form and record of payment must be retained for 3 years within State of California and must be available for inspection by employee and DLSE upon reasonable request |
Written claim form and record of payment must be retained for 3 years within State of California and must be available for inspection by employee and DLSE upon reasonable request |
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Enforcement Methods & Attorneys’ Fees/Costs |
Administrative claim to DLSE or private civil action. Reasonable attorneys’ fees and costs are recoverable. |
Administrative claim to DLSE or private civil action. Reasonable attorneys’ fees and costs are recoverable. |
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Per Diem (Travel Away From Home) For Meals & Lodging |
Per Diem (Travel Away From Home) For Other Incidental Costs |
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Covered Work-Related Expenses |
Regular meals, tips to porters & maids, |
Tolls, parking, car rental, laundry of clothing, mail, telephone, fax, shipping, transportation between home & airport & lodging |
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Reimbursement Rate |
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Reasonable cap on certain costs permitted so long as cap is not less than actual costs for such items in that locale |
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Prior Notice & Documentation Verifying Expenses |
Prior notice to employee of reimbursement policy required before travel or employer must pay actual costs; written reimbursement claim with receipts may be required of employee |
Prior notice to employee of maximum allowances required before travel date or employer must pay actual costs; written reimbursement claim with receipts may be required of employee |
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Method & Timing of Reimbursement |
When wages are paid or at least once per calendar month, no later than end of calendar month following expenses or provision of records to employer; payable by check with detachable stub either explaining computation of reimbursement, including applicable time period and specific items paid or attaching copy of reimbursement claim with notation of amount paid; no deductions allowed; not taxable as wages |
When wages are paid or at least once per calendar month, no later than end of calendar month following expenses or provision of records to employer; payable by check with detachable stub either explaining computation of reimbursement, including applicable time period and specific items paid or attaching copy of reimbursement claim with notation of amount paid; no deductions allowed; not taxable as wages |
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Recordkeeping & Inspection |
Written claim form and record of payment must be retained for 3 years within State of California and must be available for inspection by employee and DLSE upon reasonable request |
Written claim form and record of payment must be retained for 3 years within State of California and must be available for inspection by employee and DLSE upon reasonable request |
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Enforcement Methods & Attorneys’ Fees/Costs |
Administrative claim to DLSE or private civil action. Reasonable attorneys’ fees and costs are recoverable. |
Administrative claim to DLSE or private civil action. Reasonable attorneys’ fees and costs are recoverable. |
For additional information on the DLSE’s proposed Travel Expense Regulations, please contact the Thelen Reid Labor and Employment Attorney(s) with whom you ordinarily consult.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
