Under the California Labor Code, an employer is required to reimburse an employee for all necessary expenditures or losses incurred directly related to the job. For example, Flores said, "if an employee has a very expensive car that gets poor gas mileage, the employee could argue that the IRS rate is not sufficient reimbursement for the actual expenditures or losses incurred when the employee used his or her own vehicle for company business," she said. How to offer mileage reimbursement the right way in California? Necessary expenditures or losses include all reasonable costs. Calculating California mileage reimbursement takes a combination of current IRS laws and financial expertise. However, several states (including California, the District of Columbia, Illinois, Iowa, Massachusetts, Montana and New York) have specific state law requirements applicable to employee expense reimbursements. Expense Reimbursement You must reimburse employees for all monies that they necessarily expend or lose, directly related to performing their duties or following your directions. California law requires your employer to reimburse you for all necessary expenses you incur because of your job. [SHRM members-only HR Q&A: What are the business-related expense reimbursement requirements under California law?]. The contractor can then deduct business expenses on their own tax return. Flores cautioned, however, that the IRS reimbursement rate might not always be adequate in California. Expense Reimbursement in California Besides regular wages and vacation pay, you may owe other types of compensation to the employee when the employment relationship ends. Some states (like California, Illinois, and Montana) have more robust reimbursement laws in that employers are required to reimburse employees for all “necessary expenditures or losses” or “business expenses” incurred by the employee in direct consequence or discharge of his or her duties. Travel Advance and Expense Reimbursement Select a link to get instructions for a specific role: Employee Instructions Create and submit Travel Advance or Expense Reimbursement forms for yourself. In response to the COVID-19 pandemic and state and local quarantines, many employers directed employees to work from home. The law is intended to prevent employers from passing on their operating expenses to their employees. Consequently, in addition to other pandemic-triggered adjustments, employers should review and update their remote work and expense reimbursement policies immediately. The code states that the penalty for not reimbursing an employee includes: Costs incurred in obtaining reimbursement Liability for expenses, plus interest Join/Renew Now and let SHRM help you work smarter. This includes expenses as a “direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer.” 1 Types of Reimbursement Expenses "As such, there is a built-in incentive for plaintiffs' counsel to take these cases since there is a statutory right" to attorney's fees, said Michelle Lee Flores, an attorney with Cozen O'Connor in Los Angeles. Join hundreds of workplace leaders in Washington, D.C. and virtually March 22-24, 2021. Source: Reprinted with Permission, CEA Partner. The most common type of on-the-job expense employees have is the cost of using a personal vehicle. In certain circumstances, employers are not required to reimburse for hand tools, personal equipment or generic uniforms, Carter noted. Employers can, of course, take steps to control home office expenses. Most businesses prefer to include reimbursement amounts in the 1099 income rather than go through reimbursing expenses. This rule, embodied in California Labor Code Section 2802, prohibits employers from shifting their costs of doing business onto the backs of employees. Expense Claim Reimbursement Under normal conditions, travel expenses that occur in California are not reimbursable per the CFAA. Employers requiring employees to work from home during COVID-19 quarantines should promptly review and update their expense reimbursement policies. What If FFCRA Expires at the End of the Year? A California employee must receive reimbursement for any mandatory business expense. An expense reimbursement policy is used in a business to repay employees for any out-of-pocket expenses that they have incurred on behalf of their employer. However, this general rule has a multitude of nuances once one examines all the different costs that arise in the employment context and the various Labor Code and Wage Order provisions that apply. When considering the reimbursement obligation, employers must address not only the amount of reimbursement, but the timing of reimbursements. Reimbursement of Employee Expenses. Can I file a lawsuit to get unpaid travel expenses reimbursed in California? Carter said multistate employers could alternatively opt to establish a California-compliant expense reimbursement policy and apply it to all its employees throughout the country. Let SHRM Education guide your way. California law requires your employer to reimburse you for all necessary expenses you incur because of your job. $("span.current-site").html("SHRM MENA "); Be smart about crafting a detailed mileage reimbursement policy to protect yourself and your employees. You have successfully saved this page as a bookmark. The IRS provides detailed guidance about these types of expenses in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses. Please enable scripts and reload this page. There are different expense reimbursement rules for independent contractors, who are paid via Form 1099. The contractor can then deduct business expenses on their own tax return. In the event of a large expense, such as the purchase of a printer or the repair of an internet connection, the expense should be reimbursed upon demand. Reimbursement of Employee Expenses. California Labor Code section 2802 requires employers to reimburse employees, “for all necessary expenditures or losses incurred by the employee” while completing work duties. California law generally holds that an employer may not pass the ordinary costs of doing business on to employees. Prior to the pandemic and resulting quarantines, employers who permitted, but did not require, employees to work from home generally were not obligated to reimburse employees for the use of their home computer, internet and/or cell phone. Carter noted that lodging at five-star hotels when more modest accommodations would do probably would not be considered necessary or reasonable—as long as the employer did not direct the employee to stay at such places. An employer cannot refuse to reimburse you for unpaid expenses incurred on behalf of the company, unless you are outside the statue of limitations for requesting reimbursement. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item. Reimbursement of Employee Expenses. A meal expense may be an allowable expense if the employee is eligible to claim a meal in accordance with state policy. You can claim 100% of your mileage allowance (or vehicle expense) as a gig economy contractor in California under Prop 22, even with the 30 cent per mile pay calculation. Please purchase a SHRM membership before saving bookmarks. "This would bring the added benefit of compliance for situations in which non-California employees travel to and incur necessary expenses in California, where they're entitled to California employee protection," he said. An expense reimbursement policy is used in a business to repay employees for any out-of-pocket expenses that they have incurred on behalf of their employer. Effective May 11, 2020, state employees may receive reimbursement for tips related to allowable meal expenses incurred while conducting approved state business as follows: Up to $2.00 or 20%, whichever amount is greater. First, the expense must be considered ordinary and necessary for your business. Turning to the first issue, the Courts provided employers various options. Employees commonly use their own vehicles to get to job sites, run work-related errands and meet with clients. In Gattuso v. California Expense Reimbursement Law Does Not Allow Employees To Waive Their Rights California Labor Code, Section 2804, states that any agreement, implicit or explicit, to waive an employee’s right to full reimbursement for expenses is unlawful and not enforceable. 1 Preview Expense reimbursement may seem like a small issue in comparison with the other areas of liability facing California employers, but the exposure for not appropriately reimbursing employees can be substantial. Need help with a specific HR issue like coronavirus or FLSA? Accordingly, employees who receive the IRS rate can argue that they are actually owed more. Expense reimbursement policies detail when and how employees will be repaid for company expenses, and they generally outline the proper procedure for reimbursement. California Labor Code Section 2802 obligates employers to reimburse their employees for all expenses incurred during the discharge of their duty. To that end, the Labor Code mandates that California employers reimburse employees for mandatory expenses incurred in performing job duties. While some financial relief may arrive in the form of loans (forgivable or not) and tax assistance, employers should not expect any relief whatsoever with respect to employee protections, including minimum wages and expense reimbursement. California employers must reimburse workers for reasonable business expenses. Reimbursement of Employee Expenses. Your session has expired. Try some practice questions! Secondly, the expense must be primarily for business purposes (e.g., travel to a new client’s office). Employers should attempt to complete reimbursement at the time of termination, but are not required to do so. California employers must reimburse employees for expenses incurred while using their personal vehicles for anything other than normal commuting. November 2006 Beneficiary Notice for Reimbursement of Out of Pocket Expenses. Preparer Instructions Prepare Travel Advance or Expense Reimbursement … The employment law attorneys at Gaines & Gaines help workers throughout California with all of their wage and hour issues, including obtaining recovery for unpaid expense reimbursement. In some cases, this will require a monthly stipend. Be smart about crafting a detailed mileage reimbursement policy to protect yourself and your employees. California Law Addresses Employee Business Expense Reimbursement While not mandatory in every state, California employers are required to reimburse their employees for reasonable business expenses. Source: Reprinted with Permission, CEA Partner, Christopher Moores, Associate, Cook Brown, LLP - (916) 442-3100, ©2020 California Employers Association. … The Courts, however, rejected this argument and consistently held that employers must pay a fair share of such costs. A company's remedy for an employee who does not submit expense reimbursement requests per company policy would be to discipline the employee. The reimbursement for the full amount of the expense you paid for the service will be issued directly to you from Medi-Cal. Receipts are required for all expenses, except personal auto mileage. Members can get help with HR questions via phone, chat or email. Businesses frequently reimburse workers for personal-vehicle use at the established IRS rate. California law operates to ensure employers provide employees with the equipment and resources necessary to work and protect employees by preventing employers from passing operating expenses on to employees. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Employers can and should also instruct employees to avoid incurring any work expense absent authorization. Need help drafting a policy? else if(currentUrl.indexOf("/about-shrm/pages/shrm-mena.aspx") > -1) { Labor Code § 2802 Reimbursement Claim Elements In California, a Labor Law was passed relating to business expense reimbursement. Expense Reimbursement for Independent Contractors. Was this article useful? Need help drafting a policy? This issue may seem less significant than some California mandates—such as paid-time-off and additional leave requirements—but failing to properly reimburse employees for the expenses they incur can lead to class-action lawsuits. California employers must reimburse employees for expenses incurred while using their personal vehicles for anything other than normal commuting. As businesses and individuals try to ascertain what the new normal will look like, one thing is clear: the workplace as we’ve known it is transforming. So an employer may be required to reimburse business expenses—even under federal law—if a worker's wage rate falls below the minimum wage after he or she pays out of pocket for business expenses. The connectivity issue for many businesses may seem, at first glance, easy to resolve as many employees have internet capability and of course cell phones. A company's remedy for an employee who does not submit expense reimbursement requests per company policy would be to discipline the employee. A California Court of Appeal recently issued a short decision in Cochran v.Schwan’s Home Services, Inc., B247160 (Aug. 12, 2014) that took an expansive view of an employer’s obligation to reimburse employees for business expenses. Most employers are well aware that employees who are terminated must be paid all accrued wages and vacation within 24 hours (72 hours for employees who resign). Successfully interpret and apply California employment law to your organization’s people practices. CEA does not discriminate on the basis of disability and we provide reasonable accommodations to individuals with disabilities. Most businesses prefer to include reimbursement amounts in the 1099 income rather than go through reimbursing expenses. Under these circumstances, a less-risky practice would be to provide payment to the employee in order to comply with the employer's obligation to reimburse for such expenses and then also counsel or discipline the employee for failing to follow company policy, she said. This article addresses … Please log in as a SHRM member. Update: On November 25, 2014, the California Supreme Court denied a petition for review and denied a request to depublish the appellate court case. The law is intended to prevent employers from passing on their operating expenses to their employees. "This has allowed employers to apply a common sense approach or limit to determine what is 'necessary'—which case law has deemed depends on whether the employee made reasonable choices.". California’s Labor Code Section 2802 normally requires employers to reimburse employees for “reasonable” and “necessary” expenses incurred while performing their job duties. California Law Addresses Employee Business Expense Reimbursement While not mandatory in every state, California employers are required to reimburse their employees for reasonable business expenses. "As such, it requires reimbursement for the actual costs incurred, but it still has a 'necessary' component to it," Flores said. Employers that fail to reimburse … As an example, he pointed to a case in which a California appellate court held that an employee who was required to use his personal cellphone for work purposes was also entitled to reimbursement—even if he already had an unlimited plan and his cellphone bill didn't increase because of his work usage. The law is intended to prevent employers from passing on their operating expenses to their employees. What Is the California Expense Reimbursement Law? Preparer Instructions Prepare Travel Advance or Expense Reimbursement … Employees should be reimbursed at a reasonable rate, such that they are not forced to finance the employer’s own expenses. The world is a different place today than it was a month ago – or even a week ago. This is particularly true where the employee has contracts with flat fee rates, rather than rates based upon usage. Mandatory remote work expenses must be reimbursed in California. There is no federal requirement to reimburse employees for business-related expenses. Employees’ Personal Vehicles: If an employee is required to use her personal vehicle for work (other than for a normal commute), California law requires that she be reimbursed for the expense of that use. There are different expense reimbursement rules for independent contractors, who are paid via Form 1099. There is no federal requirement to reimburse employees for business-related expenses. California Labor Code §2802. 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