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LEGISLATIVE / REGULATORY UPDATE Labor Commissioner Proposes Regulations on Travel Expense Reimbursement Under Labor Code Section 2802 Citing confusion in the employer community and the lack of judicial authority about how employers must comply with Section 2802, the Labor Commissioner has proposed new regulations to implement and interpret that section. The regulations would become sections 13700-13706 of Title 8 of the California Code of Regulations. In its Initial Statement of Reasons, the Labor Commissioner explains that the travel expense regulations are necessary to:
These regulations come on the heels of a late 2005 decision by the California Court of Appeal in the case of Gattuso v. Harte-Hanks Shoppers. In that case, the court upheld an employer’s use of increased compensation as a lawful method of reimbursing travel expenses for a group of outside sales persons. The court found that nothing in Section 2802 prohibited the use of such a method. The California Supreme Court has granted review of that case and a decision is expected in 2007 or sometime in 2008. In the meantime, the DLSE will be receiving public comment on the proposed regulations, which include the following provisions: 1. Mileage Reimbursement a. The IRS standard mileage reimbursement rate is presumed to be a reasonable rate for reimbursement of mileage to employees. An employer who believes that an employee’s reimbursement rate is less than the IRS rate has the burden of proving the necessarily incurred actual expenses of the employee for the use of his or her vehicle. The employer must keep full, complete and accurate records of all costs associated with each vehicle used by the employee. A period of not less than one year immediately preceding the computation must be used to calculate the employee’s total expenses necessarily incurred in the operation of each vehicle. b. An employee who believes that the reimbursement rate for his or her actual necessarily incurred expense is greater than the applicable IRS rate has the burden of proving the actual expenses for the use of the vehicle. To meet that burden, the employee must keep full, complete and accurate records of all costs associated with each vehicle used by the employee for which indemnification is required. As with the employer, a period of not less than one calendar year immediately preceding the computation must be used to calculate the employee’s total expenses necessarily incurred in the operation of the vehicle. c. Employers must keep daily mileage records of the number of miles driven for work by employees in their personal vehicles. The records must be produced in ink or other indelible form, properly dated, showing the day, month and year. They must be kept and maintained on file by the employer for at least three years. The records shall be available for inspection by the employee and the DLSE upon reasonable request. d. Employers must pay mileage reimbursement when wages are paid, or at least once per calendar month, as determined by the employer. All such payments must be made not later than the end of the calendar month following the calendar month the expenses were incurred, but if the employee fails to provide the employer with the records of the number of miles driven for the reimbursement period, the reimbursement must be made no later than the month following the month in which the employee provides the employer with the records for the mileage claimed. 2. Employer-Provided Vehicle Costs a. An employer must pay all expenses incurred by employees when the employer provides a vehicle to an employee to be used in connection with work. These expenses include gas purchases, oil purchases, lease or purchase payments, garage rent, repairs, tires, vehicle depreciation for a relevant period of time, DMV registration fees and licenses, and the cost of insurance for the vehicle. b. Employers must keep and maintain all records in connection with each request for employer-provided vehicle cost reimbursement. The obligation is similar to what is described above in connection with mileage reimbursement. c. The payment of employer-provided vehicle cost reimbursement must occur in the same manner as described above in connection with mileage reimbursement costs. 3. Payment of Per Diem Expenses a. Meals – an employer must reimburse each employee for the purchase of meals when the employer requires the employee to travel away from home on business. This reimbursement must be by the actual cost method or the standard meal and incidental expense allowance method at the approved IRS rate. b. Incidental Expenses – an employer must reimburse an employee for incidental expenses necessarily incurred when traveling away from home on business. These include fees and tips given to porters, baggage carriers, bell hops, hotel maids, stewards and stewardesses and others on ships, and hotel servants in foreign countries. They also include transportation between places where meals are taken and mailing costs associated with filing travel vouchers and payment of employer-sponsored charge card billings. The do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or telephone calls. (However, these excluded costs may qualify as covered reimbursable costs if expended in connection with travel as “Other Travel Costs” under another section of the proposed regulations.) c. An employer must reimburse an employee for the cost of a hotel room for each night that an employer requires an employee to travel away from home. This reimbursement must be the actual cost of the hotel room, or by using the lodging allowance rate approved by the IRS. d. Per Diem Rate – rather than reimbursing the actual cost of meals, lodging and incidental expenses, an employer may elect to pay the lump sum per diem rate set by the IRS for the location the employee must travel at the rate approved by the IRS. An employer must notify employees of any policy that the employer has regarding reimbursement for per diem expenses, before employees travel overnight for work. If there is no such notification in writing before the travel date of the employer’s maximum allowance determined to be reasonably necessary for per diem expenses, the employer must reimburse the actual expenses incurred by the employee. e. The recordkeeping obligations with respect to reimbursement of these types of expenses are the same as those described above in sections 1 and 2. 4. Attorney’s Fees and Costs for the Administrative Process a. An employee shall be entitled to an award of reasonable costs and legal fees necessarily incurred in enforcing any rights guaranteed by Section 2802. Costs recoverable under that section shall include the cost of preparing for and proceeding with the administrative hearing, including witness fees, mileage fees, and the costs associated with service of process. b. Attorney’s fees for legal work performed during the administrative process shall be based on the reasonable hours expended on the case while pending before the DLSE, multiplied by a reasonable hourly rate. 5. Remedies a. To enforce Section 2802 rights, an employee may elect to file an individual wage claim for reimbursement of expenses, and this claim will be processed under the procedures set forth in Labor Code 98, et seq. b. On behalf of an employee, the DLSE may file an action to recover unreimbursed expenses in a civil action. c. Alternatively, an employee may elect to enforce rights under Section 2802 through a private civil action, and seek the recovery of costs and reasonable attorney’s fees incurred in litigation. Please remember that these are proposed regulations at this time; they have not been passed, and are not currently legal requirements. The California Chamber of Commerce is urging the DLSE to delay further consideration and possible implementation of the regulations until the California Supreme Court has ruled on the Gattuso matter. It is not yet known how the DLSE and the Labor Commissioner will respond to that request. If your company currently uses extra compensation as a method for reimbursing travel expenses, you should consult with your attorney to discuss these regulations and determine whether your method of reimbursement will likely need to change in the near future.
NEXT: New Law Clarifies Employer’s Obligations Regarding Payment of Overtime Wages
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