What you need to know about reimbursing employee expenses

From time to time, virtually all employees are asked to dip into their own pockets for legitimate business needs. This may take form of filling up the employee’s car with gas after a long drive to meet with a client, or buying office supplies at Staples. How many of you reading this article have asked an employee to pick up a birthday cake or flowers for another employee? So when employees do use their own funds for business needs, what is the obligation of the employer?

According to Labor Code section 2802, “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer …” As alluded to above, this usually takes the form of mileage, travel, and dining expenses.

How do I reimburse for mileage?

A year ago gas prices were through the roof. Eight months ago gas prices were lower than they had been in years. Fortunately, employers have a guide when reimbursing employers for their mileage. The Internal Revenue Service (IRS) issues a standard mileage rate that fluctuates based on gas and other travel prices. The current IRS standard mileage rate is 55 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations. Here’s how the IRS has recently taken gas prices into account when setting the standard rate: the rate was 50.5 cents at the start of 2008, then climbed to 58.5 cents in the second half of 2008, and then came down again to the current rate of 55 cents per mile.

While the rate usually adjusts each January – as evidenced by the multiple changes in 2008 – employers need to be on the lookout for changes in the IRS mileage rate to ensure that employees are being properly reimbursed.

When do I have to reimburse my employees?

Expense reimbursements are not considered wages. As such, wage laws, such as those regulating the time and place of payment, do not apply to expense reimbursements. Therefore, employers are free to make expense reimbursements on any reasonable schedule. Many employers choose to reimburse employees once a month.

Are expenses due immediately on termination?

There are specific time frames in which employers are required to pay employee wages when the employment relationship is terminated. When an employee is terminated, all wages (including vacation) are due immediately. When an employee quits and gives more than 72 hours notice, all wages are due on the last day of work. When an employee quits and gives fewer than 72 hours notice, all wages are due within 72 hours after notice is given.

Expenses work differently, however. The deadlines described above that apply to final wages do not apply to reimbursement of expenses. Reimbursements can be made at the normal time for payment – and as outlined above, employers are free to create a reasonable schedule for reimbursement of expenses.

In conclusion, the rules regarding expenses are straightforward, and few problems arise in this regard. Nevertheless, employers can save themselves problems down the road by making sure employee expenses are handled properly.