Your business may offer mileage reimbursement programs for your employees. But, do you have to?
Here’s what you should know about employee mileage reimbursement laws.
What Does The Government Require For Employee Mileage Reimbursement?
There is no federal law requiring businesses to reimburse employees for their mileage. Some states like California do require you to reimburse employees for their mileage.
Mileage reimbursement can be a good way to attract and maintain workers. Many organizations use the optional Standard Mileage Rate for their reimbursement rates. For 2017, that would mean providing 53.5 cents per business mile.
Your mileage reimbursements may be a deductible business expense at tax time.
The FLSA Rule Kickback Rule & Mileage Reimbursement
There’s no federal mandate requiring mileage reimbursements. But, there may be a slight exception depending on the net compensation.
The Fair Labor Standards Act requires wages to be “free and clear.” Employees can’t “kick-back” directly or indirectly a part of their wages to the employer. This could be through cash or non-cash, such as business use of a vehicle.
If the net effect of not reimbursing mileage means an employee’s compensation falls below minimum wage, your business may be in violation of the FLSA.
California Mileage Reimbursement Requirement
California requires employers to reimburse workers for their business mileage. This is according to Section 2802 of the California Labor Code. Importantly, employers don’t have to reimburse employees for commuting.
These methods comply with California requirements:
- Mileage Reimbursement: Employees track their mileage and are reimbursed for the amount they drove (at the standard mileage rate). This is the most common method and considered the easiest.
- Actual Expense Method: Employees track the actual expenses for their business vehicle use and are reimbursed. This is often very tedious and includes a lot of record-keeping.
- Lump Sum or Allowance: Employers provide an agreed-upon amount per month. This is often known as a car allowance. Downsides of this include a tax hit for employees and the fact that it’s often inefficient.
Is Mileage Reimbursement Taxable Income?
Your employees don’t have to pay taxes on a mileage reimbursement if you have an accountable plan. An accountable plan follows these requirements:
- Has a business connection
- Requires substantiation
- Excess amounts are returned in a reasonable time.
How Do Companies Calculate Mileage Reimbursement?
The majority of companies rely on manual mileage logging. Employees have to write down their mileage then input it to a spreadsheet. They then must submit that to finance and then employees are eventually reimbursed. This process is often inefficient and can fall prey to employees doctoring mileage.
Digital products like MileIQ for Teams provide simple yet powerful mileage reimbursement solutions. Employers can rest assured that they’re reimbursing the proper amount. Employees enjoy how they can stop worrying about tracking mileage and focus on growing the business.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.