California Labor Laws | Mileage Reimbursement

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California labor laws can be tricky, what is mileage reimbursement, and why do you need to know?

As per California’s Labor Code Section 2802, employers must reimburse their staff for all reasonable expenses that incur while on duty. This can range from delivery driving expenses (gas and wear-and-tear of a vehicle) to picking up an item for your business. Anything that requires an employee to use their personal vehicles other than their normal commuting is required to be reimbursed. And failing to pay these expenses is an easy path to a class action lawsuit.

Federal vs state California labor laws.

For every mile of business travel driven, the current federal reimbursement rate for mileage is 54.5 cents. This has been calculated by the IRS based on an annual study of the fixed and variable costs of operating an automobile.

Under Federal law, mileage reimbursement is not required. But in an employee-friendly state like California, employers must reimburse employees for all reasonable time spent driving outside of their commute. In the hospitality industry, the most notable reimbursement is mileage, specifically for delivery drivers.

Importance of policies.

It’s crucial to note that 54.5 cents is the minimum rate for reimbursements. Under California law, there is no minimum but in the case of a class-action lawsuit, an employee can argue that they are being under-compensated, according to the Society for Human Resource Management. In this case, the importance of a policy here is important. It's crucial to provide a policy in which employees and employers are under the mutual understanding of an agreement. This should always be, in the best interest of the employee, and to protect the employer.

If you are a multi-state business with locations in California, it would be a smart and proactive choice to implement a mileage reimbursement policy for all your locations. This will be a competitive advantage for an industry that has high employee turnover, and it'll eliminate the risk for class-action lawsuits due to being noncompliant.

To put it into perspective, here's an example of when mileage reimbursement is due:

Joe is a delivery driver. He has signed an agreement for a 80.4 cent mileage reimbursement for his vehicle’s wear and tear, gas, and mileage. On a day’s shift, he has driven 44.7 miles that does not include his commute to and from work. However, included in his day's mileage, is a 2 mile trip to and from his home as he had forgotten his credit card. In this case, his employer only owes him a 42.7-mile reimbursement as the trip to and from his home was not work-related.To calculate his reimbursement:

  • 42.7 miles x $0.804 = $34.33 in mileage reimbursement

Scenario B:

Joe is a delivery driver. He has signed an agreement for a 80.4 cent mileage reimbursement for his vehicle’s wear and tear, gas, and mileage. On a day’s shift, he has driven 44.7 miles. Included in his mileage, is a 2 mile trip to and from his home outside of his normal commute to and from work. Earlier in his shift, his co-worker had forgotten to bring his hat, which is a part of his uniform. Joe has an extra hat at home and his manager asks Joe to go home to get it. In this case, the reimbursement will also include the additional 2 miles as the trip to and from his home was work-related.

A cost-effective solution to mileage reimbursement could be leasing a vehicle for your employees’ work duties like deliveries if you’re paying more than the federal minimum.

Here’s a quick run down:

  • Vehicle Price: $18,000 2019 Kia Forte
  • Monthly Lease: $250/month
  • Insurance: $150/month
  • Repairs: $50 (estimated)
  • Gas:  25 miles per gallon @ $4 per gallon = $0.20/mile

The break-even point is:

  • ($250 + $150 + $50 as a fixed cost) + the variable cost of $0.20/mile = $0.60/mile the established reimbursement rate to break even
  • 1125 Miles = the break even point
  • If an employee drives less than 1125 miles/month, then the reimbursement is more cost-effective than leasing a car
  • However, if an employee drives more than 1125 miles/month, leasing a vehicle is more cost-effective than offering a mileage reimbursement.

In conclusion, if your delivery driver drives more than 1125 miles per month, and you are paying a mileage reimbursement of more than $0.60 per mile, it would be a more cost-effective idea to lease a vehicle for them to use. However, based on the parameters above, any less than 1125 miles per month would equate to more than $0.60 per mile in cost.

Be prepared.

In short, to cover your interests as an employer, look into implementing a fair and understandable reimbursement policy to provide employees with the best benefits. Not only will this proactive step protect your employee’s rights, but it will also strengthen your goal of being compliant.


This document is provided by Push Technologies Inc. ("Push Operations") for information purposes only. This is not an official or legal document and should not be taken as legal advice. Push Operations does not guarantee or warrant the accuracy or completeness of the information provided. For the most accurate and up-to-date information, please check with the proper governing authority.

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December 2020


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