The California Division of Labor Standards Enforcement Has Proposed New Travel Expense Reimbursement Regulations: What Employers Need to Know.
One of the most significant aspects of the new regulations addresses the ability of employers to substitute increased pay for the reimbursement of business expenses. In October 2005, a California Court of Appeal held that employers are allowed to form an agreement with an employee to increase the employee's pay in lieu of providing travel reimbursements. (For more information, see our discussion of the Gattuso v. Harte-Hanks Shoppers, Inc., case at http://www.laboremploymentlawblog.com\) The California Supreme Court agreed to hear the case and decide this issue. However, the DLSE is not waiting for a decision from the Supreme Court. Instead, the DLSE included language in the proposed regulations that would prohibit an employer from substituting increased pay for reimbursement of travel expenses.
The proposed regulations regarding mileage reimbursements also presume that the employers will pay the IRS mileage allowance. If adopted, the regulations would require that employers keep track of the employee's mileage, but also provide that "an employer may require employees to record and submit the necessary mileage information." (The IRS mileage rate in question is 48.5 cents per mile for 2007).
If the employer wants to reimburse an employee for an amount less than the IRS mandated cents per mile amount, it has the burden of proving that the particular employee's mileage reimbursement rate is less than the appropriate IRS rate. Similarly, if the employee wants to be reimbursed for an amount more than the mandated IRS rate, the employee would be required to prove that his/her actual costs exceeded the appropriate IRS mileage allowance.
In addition, if the proposed new regulations are adopted, employers will have three options that they can use to properly reimburse their employees for the costs that they incur for business travel, including expenses such as meals and lodging. First, the employer can pay the actual costs employees incur for travel. Second, the employer can use the Internal Revenue Services' standard meal and incidental expense allowance method. This method is based upon rates published annually in Internal Revenue Service Publication 1542. Finally, an employer may elect to pay a lump sum per diem rate set by the IRS for the location to which the employee must travel in lieu of reimbursing the actual cost of meals, lodging and incidental expenses. One of the most important aspects of this proposed new regulation is that if it is adopted, an employer must notify each employee who is required to travel overnight for work of any employer policies regarding reimbursement for per diem expense in advance of any such travel. "If an employer fails to notify an employee, in writing, prior to the travel date, of the employer's maximum allowance determined to be reasonably necessary for reimbursement for per diem expenses, the employer shall reimburse the actual expenses incurred by the employer for such expenses."
There are a number of additional new responsibilities that employers will assume if these regulations are adopted, including requirements that the employer:
· Provide a pay stub that has an (i) itemized statement in writing, (ii) explaining the computation of the mileage reimbursement, (iii) including the beginning and end of the time period for which the mileage reimbursement check is being issued, (iv) the rate of reimbursement used, and (v) the number of miles being reimbursed.
· Reimburse an employee for expenses by the end of the calendar month following the calendar month in which the expenses either were incurred or the employee provided the employer with the records for the mileage claimed.
· Keep and maintain all of the records in connection with each request for per diem reimbursement and each request for employer provided vehicle costs reimbursement, and a record showing each item of each such request for reimbursement paid by the employer. Theses records shall be produced in ink or other indelible form, properly dated, showing the day, month and year, and shall be kept on file by the employer for at least (3) three years at the place of employment or a central location within the State of California. Each employee's records shall be available for inspection by the employee and the Division of Labor Standards Enforcement, upon reasonable request.
· Bear the expenses of maintaining a vehicle, if the employer provides a vehicle to the employee, including, but not limited to, gas purchases, oil purchases, lease or purchase payment, garage rent, repairs, tires, vehicle depreciation for the relevant period of time, Department of Motor Vehicle registration fees and licenses, and the cost to insure the vehicle.
· Reimburse an employee for incidental expenses necessarily incurred when traveling away from home on business, including fees and tips given to porters, baggage carriers, bellhops, hotel maids, steward or stewardesses and others on ships, and hotel servants in foreign countries.
Finally, the proposed regulations provide that employees who bring a claim for expense reimbursement to the Labor Commissioner will be entitled to recover their attorneys' fees. This will be true, even if the fees are for legal work performed during the administrative process. This could potentially incentivize employees to bring more claims against their employers before the Labor Commissioner.
The DLSE is holding a public hearing on the proposed regulations on February 7, 2007, in San Francisco. We encourage all employers to attend the hearing or submit comments in advance of the hearing. In any case, it would be prudent for employers to reevaluate their expense reimbursement policies and practices with a qualified attorney. Please do not hesitate to contact our office if you have questions or concerns about these proposed new regulations, would like a more detailed explanation of the proposed new regulations, or would like more information on either the comment period or the hearing.