DLSE PROPOSES TO ADOPT REGULATIONS ON REIMBURSEMENT OF EMPLOYEE TRAVEL EXPENSES

Section 2802 of the California Labor Code requires employers to indemnify employees for “all necessary expenditures or losses” that they incur “in direct consequence of the discharge of [their] duties.” The Division of Labor Standards Enforcement (“DLSE”) has the authority to investigate and adjudicate claims under section 2802 and has previously issued opinion letters on the subject, but has never issued any regulations dealing with expense reimbursement. Recently, however, the DLSE published a set of proposed regulations that are intended to clarify the requirements of section 2802 as they relate to travel expenses.

The DLSE has scheduled only one public hearing on the proposed regulations. The hearing is scheduled for February 7, 2007, at 10:00 a.m. in the Hiram Johnson State Building, located at 455 Golden Gate Avenue in San Francisco. At the hearing, any person may present statements or arguments, orally or in writing, about the proposed regulations. Interested persons or their authorized representatives may also submit written comments about the proposed regulations to the DLSE. However, all written comments must be received by the DLSE at its Sacramento Office by 5:00 p.m. on February 7, 2007.

The following are among some of the key provisions of the proposed regulations:

• No agreements for “less than full indemnification.”
  
  The proposed regulations would expressly prohibit employers and employees from agreeing to less than full indemnification for all necessarily incurred expenses. Full indemnification would be defined as “the amount that fully compensates each employee for what the employee has necessarily expended in the performance of work for the employer.”
  
  
• Mileage reimbursement when employees use their personal vehicles.

  The proposed regulations would provide that the IRS standard vehicle mileage reimbursement rate is presumed to be a reasonable rate for reimbursement of mileage when employees use their personal vehicles for work. An employer who believes that a specific employee’s mileage reimbursement rate is less than the IRS rate would have the burden of proving that the lower rate actually compensates the employee for all of the actual expenses necessarily incurred by the employee in connection with the use of his or her vehicle, and the employer would have to maintain and submit specified records in order to meet that burden. Similarly, an employee who believes that his or her actual expenses are greater than the IRS rate would have the burden of proving that, and would also have to maintain and submit specified records in order to meet that burden.

  Employers would be permitted to require employees to record and submit their mileage information, but employers would be required to keep for at least three years each employee’s daily record of miles driven for work. (Miles driven for work would not include the mileage commuting from home to work.)

  Employers would have to compute and pay mileage reimbursement at least once each calendar month, and all reimbursements for mileage would have to be made no later than the end of the calendar month after the month in which the expenses were incurred, unless the employee failed to provide the employer with the necessary mileage information in the same month in which the miles were driven.

  Employers would have to provide employees with a written statement explaining the computation for the mileage reimbursement.
  
  

• Reimbursement for expenses when employees use employer-provided vehicles.

  The proposed regulations would state that employers who provide vehicles to be used in connection with work are required to pay all expenses necessarily incurred by employees in connection with the operation of those vehicles, including gas purchases, oil purchases, lease payments, purchase payments, garage rent, repairs, tires, vehicle depreciation, DMV registration fees and licenses, and the cost of insurance.

  Employers would have to keep for at least three years written records pertaining to the reimbursement of expenses relating to employer-provided vehicles.

  Employers would have to compute and pay reimbursement for the costs of employer-provided vehicles at least once each month, and all reimbursements would have to be made no later than the end of the calendar month after the month in which the expenses were incurred, unless the employee failed to provide the employer with the information or records necessary to calculate amount of reimbursement owed.

  Employers would have to provide employees with a written statement explaining the computation for the reimbursement.

  Employers would be prohibited from taken any deductions from any amounts paid to employees as employer-provided vehicle reimbursements.
  
  

• Expenses incurred by traveling employees.

  Meals. Employers would be required to reimburse employees for the purchase of meals whenever employees are required to travel away from home on business. Reimbursements for meals would either have to be based on the actual cost or the standard meal and incidental expense allowance method at the rate approved by the IRS.

  Incidental Expenses. Employers would be required to reimburse employees for “incidental expenses” necessarily incurred while traveling away from home on business. The term “incidental expenses” is defined in the proposed regulations to include tips, “transportation between places where meals are taken,” and mailing costs associated with filing travel vouchers and payment of employer-sponsored charge card billings. The term “incidental expenses” does not include expenses for laundry, lodging taxes, or the cost of telegrams or telephone calls. However, the costs of laundry, taxes, telegrams, or telephone calls might otherwise be reimbursable under other provisions of the proposed regulations.

  Lodging. Employers would be required to reimburse employees for the cost of a hotel room for each night employees are required to travel away from home. Employees would have to be reimbursed for the actual cost of the hotel room or by using the lodging allowance rate approved by the IRS based on the location of the employee’s lodging.

  Per Diem Rates. Employers would be permitted, in lieu of paying the actual costs of meals, incidental expenses, and lodging, to pay the lump sum per diem rate established by the IRS for the location to which the employee is required to travel. However, in order to be permitted to pay per diem rates instead of actual costs, employers would have to notify employees, in advance of their travel, of any policy of paying per diem rates instead of actual costs. Employers who fail to notify employees of per diem policies in advance would be required to reimburse for the actual costs of meals, lodging, and incidental expenses.

  Other travel expenses. Tolls, parking, car rental fees, laundry, mailing, telephone, shipping, and transportation would all have to reimbursed (even if they did not qualify as “incidental expenses”) if they were actually and necessarily incurred in connection with business travel, subject to some restrictions and limitations.

  Other provision relating to travel expensess. Employers would also be required: (1) to maintain for at least three years records pertaining to the reimbursement of travel expenses; (2) to reimburse travel expenses no later than the end of the month in which the expenses were incurred, unless the employee failed to provide the employer with the information or records necessary to calculate amount of reimbursement owed; and (3) to provide employees with a written statement explaining the computation for the reimbursement. Finally, employers would be prohibited from taken any deductions from any amounts paid to employees as reimbursement for travel expenses.
  
  

• Administrative procedures for claims involving unreimbursed expenses.

  Claims under Section 2802 could be pursued under the DLSE’s administrative hearing procedures, and employees would be entitled to recover their attorneys’ fees and costs incurred in the administrative proceedings.

The full text of the proposed regulations, along with the DLSE’s statement of its reasons for proposing the regulations, can be found at www.dir.ca.gov/dlse/2802Regs.htm.

If you would like further information about the proposed regulations or other information on the subject of expense reimbursement under Labor Code section 2802, please contact us.