While federal law does not require employers to reimburse employee expenses and mileage, some states, such as California, do. Furthermore, federal law does require that employers pay minimum wage. When the cost of the expense causes the employee to drop below the minimum wage, the employer does have to reimburse mileage and expenses.
If you need to reimburse employees for mileage, try our free calculator. It can help you figure out the cost.
When Employers Have to Reimburse Employee Expenses
Even though employee reimbursement is not mandated by the FLSA, sometimes it’s necessary in order to remain compliant with the federal law. Here is why:
“Wages must be paid free and clear of impermissible deductions – such as the costs of operating the vehicle or traveling on the road – that would reduce pay below the federal minimum.”-DOL
What this means is that an employee needs to make minimum wage after subtracting any business incurred expenses from their regular wage.
For example, if an employee works full time, making $7.25 per hour but spends $20 per week on gas for the company car, then her real wage is $6.75. To get this number, I multiplied $7.25 times 40 hours, subtracted 20 bucks, and then divided it by 40 hours to get my new wage. $6.75 is below the federal minimum wage. Under these circumstances, the employer would be violating the minimum wage law.
When an employee spends his or her own money on work related expenses, it is called a kickback. Employees kick back money from their own pockets to their employer when they drive their cars and don’t get reimbursed. When you think about it like that, it may seem a little backwards that an employee would, essentially, pay their employer. It should be the other way around. But no one is fighting the kickback per se. The problem arises when that kickback brings the employee’s total wage down below the federal or state minimum.
“Wages are not truly “received” unless they are paid “free and clear” and, thus, an employee cannot “kick-back”, directly or indirectly to the employer or to another person for the employer’s benefit, any part of the wage delivered to the employee.”-DOL
Examples of Kickbacks
Items purchased by the employee for the employer’s benefit and not reimbursed to the employee:
- Oil, tires, or repairs to an employer-owned car or truck
- Gas or tolls while driving for work purposes
- Cost of food or lodging while traveling for work
- Tools required for the job such as nails or stamps
Since the rate employers choose to reimburse employees is not mandated by federal law (the IRS rate is simply a guide) many employers choose to reimburse less than the IRS rate. This is fine in most cases but can be problematic in some.
For example, let’s say that a pizza delivery driver makes $8 per hour and the employer reimburses 30 cents per mile. Then the employee is kicking back about 24 cents per mile (since the federal mileage rate is around 54 cents). If this employee drives 100 miles per week, that’s $24. The employee only works 30 hours per week so she’s kicking back enough of her wages to bring her below federal minimum wage. Her wage “free and clear” would be $7.20.
So, do employers have to reimburse employee mileage at the full IRS rate? Maybe. It depends on their wage, the number of hours they work, and how many miles they put it. Just don’t let employees fall below the minimum wage.
Minimum Wage is Mandatory
Employees cannot wave their right to make minimum wage. They can come to an agreement with their employer regarding mileage and expense reimbursement but minimum wage is a right. This is why the kickback rule is in place – to ensure that employees make minimum wage even after kicking back cash to their employers in one form or another. FLSA violations such as these result in fees and back wages due to employees.
How to Compare Mileage to Payroll
Employees can track mileage with Timesheets.com. Managers can run expense reports and compare those to payroll reports if they’re concerned employees might be dropping below minimum wage.
Our implementation specialists are always available to help set up this and other features!