Thursday, April 3, 2014

Reimbursing Employee Mileage Update …

image This article was written by Robin Noah, SCORE Orange County Business Mentor

On December 6, 2013 the Internal Revenue Service issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Alternatively, individual taxpayers may deduct the actual costs of using their vehicles, rather than using the above standard rates.

According to Attorney Chris Olmsted (Olmsted, Barker and Barnier) employers have gone down the road of litigation after failing to reimburse employees for mileage. He notes that California Labor Code section 2802, subdivision (a), requires an employer to indemnify its employees for expenses they necessarily incur in the discharge of their duties. This includes, of course travel expenses. Employers should reimburse employees for mileage driven for business purposes in personal vehicles. (This does not include commute miles.)

Failure to pay for the mileage can easily place the employer in the courts facing litigation on issues concerning wage and hour liabilities.

Prudent employers have employee manuals/handbooks that clearly state the company’s policy on mileage reimbursement; including procedures for employees to claim and receive reimbursement for travel and other expenses. Methods and procedures should also be available to the management staff of the company so that the process can be administered equitably.

Title 8, California Code of Regulations states, in part, that employers must compute and 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 in which the expenses were incurred, unless the employee fails to provide the employer with the records of the number of miles driven for the reimbursement period, in which case 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.

Comment from The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Employers that use the IRS standard mileage rate to reimburse employees may deduct the reimbursement as a business expense. If employers use the approved rate (or a lower rate), the IRS considers that requirements to substantiate and adequately account for the expense are satisfied without extensive documentation of actual expenses

Resources: www.IRS.Gov / California Labor Code Section 2802(a) / Title 8, California Code of Regulations, Sections 1300 to 13706