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When Employers MUST Reimburse Employees For Mileage & Expenses

Employee accepting reimbursementThe question of whether employers must reimburse their employees for work related expenses comes up a lot. The answer is not cut and dry, however. The FLSA does not require employers to reimburse for mileage or other expenses but some states, such as California, do. It is the responsibility of the employer to be familiar with state laws.

Even though reimbursement is not mandated by the FLSA, sometimes reimbursement is necessary in order to remain compliant with the FLSA. 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 any business related expenses are paid by the employee. 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 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.

The Kickback

When an employee spends his or her own money on work related expenses, it is called a kickback. Essentially, an employee is kicking back money from their own pocket to their employer. When you think about it like that, it seems a little absurd that an employee would, essentially, pay their employer. It should be the other way around. But anyway, no one is fighting against the kickback per se, just 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
  • Mileage

Mileage Kickback

Since the rate employers choose to reimburse their employees is not mandated by the FLSA – 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 24 cents per mile. 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 the federal minimum. Her wage “free and clear” would be $7.20.

So, should you reimburse your employees the full IRS mileage rate? Maybe. It depends on their wage, the number of hours they work, and how many miles they put it. Just don’t let them 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.

30 Comments

  1. Joseph
    Joseph April 29, 2016

    I have an unusual situation. I work in the oil & gas industry, and my employer pays me by the hour. I frequently have to travel out of state in my personal vehicle and am paid mileage at $.575 per mile. The issue is that my employer contracts me out on a day rate, and also charges the client I am working for $1.50 a mile. Can they legally make a profit from the use of my personal vehicle? This seems to me, at the least, unethical, and at worst illegal. Can anyone out there give me some guidance, please?

    • Timesheets.com
      Timesheets.com May 16, 2016

      Wow, Joseph. That sounds a little fishy to me too. I would contact a lawyer about this and if you find a definite answer, please come back and let us know!

    • Scott
      Scott April 13, 2017

      I am very interested to know if you have come to a legal conclusion to this. I, as well as a few co-workers are going thru the same shenanigans as you described.

  2. […] Many employers think they have to reimburse mileage but, in reality, they probably don’t. Employers are free to reimburse more or less than the IRS rate as long the state they’re in doesn’t have its own requirements and as long as any lack of reimbursement does not cause the employee’s wage to fall below minimum. […]

  3. jane doe
    jane doe December 14, 2016

    if an employee drove over 2000 miles for us in 2016, would I be correct they are eligible for over $1000 reimbursement?

    • Beth Blanton
      Beth Blanton January 9, 2017

      Jane Doe,
      The IRS rate is .54 cents, so 2000 miles is $1,080.00. What the article states is that the Employer does NOT have to reimburse. If he/she doesn’t reimburse the Employee, then the Employee can take their mileage as a deduction when filing 2016 Income Taxes.

  4. C.M.
    C.M. January 27, 2017

    My employer is a homecare agency. I make $10.00 per hour. We get paid biweekly and I typically work 94 hours per pay period. My round trip mileage for work is usually around 50 miles per day. I am not reimbursed for mileage. I use my personal vehicle and spend on average $90-$120 on gas per pay period. Are they obligated to pay up?

    • Jane
      Jane March 1, 2017

      Unfortunately they are not required to pay you, unless you’re in CA. CA has a few other laws that pay caregivers between shifts… stuff like that.

  5. Osvaldo Gracia
    Osvaldo Gracia January 28, 2017

    I just started this new job in the oil field. They do not pay us hourly till we arrive on job site. What we do is meet and the yard, then we drive out in a company vehicle to the job location, and we do not get paid till we arrive on site and clock in. It’s a hour commute(both ways) from our yard to job location,and we are missing two hours of pay. Is that legal for them to do that?

    • Peggy Emch
      Peggy Emch January 30, 2017

      It’s hard to say for sure. Your drive could be considered car pooling and in that sense is a benefit. Check with an employment lawyer in your state to be sure.

  6. Susan Nelson
    Susan Nelson February 21, 2017

    It is just me in my car going to my assigned building to clean.

  7. B
    B March 2, 2017

    My previous employer will not return my phone calls, texts or emails. It took me a month and a half to receive my final paycheck upon termination. However, I still have not received mileage nor expenses for any of the time I was there (8 months). I work in healthcare as a sales person. My offer letter clearly states I am to be paid for mileage. Expenses are a given in my industry. Verbally I was always told we’ll get it taken care of or I’m sorry we switched banks, payroll companies. If this was just a couple hundred dollars then no biggie but it totals over $6,000. Any suggestions on who I should contact for help?

    • Peggy Emch
      Peggy Emch March 2, 2017

      It sounds like you need to get a lawyer. I am sorry, I can’t offer much help.

  8. Harry
    Harry March 3, 2017

    My son recently lefft a full-commission sales poison after 18 months. The employer was a general contractor repairing storm damaged roofs, roof components, windows and siding. All construction was done by subcontractors. The job was much more than sales. It included studying and testing to become an independent insurance adjuster, property inspections to determine insurable damage, project estimating using company software consistent with insurance companies, sales and contracting with the client, determining construction maters and quantities, procuring the materials, scheduling and overseeing contractors during construction, procuring, picking up and delivering supplemental materials as needed, final inspections, negotiating payment from insurance companies, and collecting payment from clients. He was only paid commission on projects making a target profitability after 10% overhead charges by the company. He needed to buy a pickup truck to carry equipment and materials to do his job. He was not paid any mileage, even though many jobs were 100 miles away in a different city. Is there any requirement to pay mileage for personal use when there is no salary? Sadly, he is now in a position to repay thousands of dollars on draws against commission provided during his training and early employment. Seasonality and project profitability did not enable him to pay living expenses and the draws. If he is owed back mileage he could break even. (Certainly his earnings would have been less than minimum wage had he been paid wages.)

    • Peggy Emch
      Peggy Emch March 15, 2017

      Hi Harry. I would speak to an employment lawyer about this. Between the low commission and the excess of mileage expenses there could be a problem.

  9. Christian
    Christian March 7, 2017

    Question: Please read Opinion letter from the Wage and Hour Division FLSA2006-7: https://www.dol.gov/whd/opinion/FLSA/2006/2006_03_10_07_FLSA.htm

    Based on this letter, a salaried exempt employee has to make a guaranteed salary every time the employee gets paid. Do employers have to reimburse salaried exempt employees for mileage and business expenses?

    Thanks!

    • Peggy Emch
      Peggy Emch March 8, 2017

      Right. So you’re wondering if the same issue applies for salaried employees. Hourly employees need to make at least minimum wage, free and clear of expenses. This is why, even though the federal government doesn’t mandate mileage reimbursement, sometimes employers must reimburse in order to keep their employees above minimum wage.

      For salaried employees, there isn’t as much written about it so I cannot say 100% if the same rule holds. But “free and clear” is mentioned on the DOL document I linked to with regard to salaried employees. While it doesn’t mention mileage specifically, I can see how someone might be able to make a case for it. https://webapps.dol.gov/elaws/whd/flsa/overtime/cr2.htm

      Read the definition – first couple paragraphs. And then read this section: What does “exclusive of board, lodging or other facilities” mean?

      • Christian
        Christian March 8, 2017

        Thanks for your input. That is exactly the way I see it. I understand there is no case law out there or an opinion letters from the Wage and Hour Division that address this specifically, but logic tells me since a guaranteed salary is treated the same way as the federal minimum wage, then kickback (in regards to mileage, etc) is not allowed when it comes to exempt employees. Of course it will take an employee to sue an employer in court to have employers realize this. Thanks.

        • Peggy Emch
          Peggy Emch March 9, 2017

          You’re welcome. I’m glad you brought it up. I agree with you. I bet it would be treated the same way as hourly. With the DOL, a lot of specifics like these don’t get fully explicated until someone gets sued. Better to be safe than sorry and take the logical route, rather than the ignorance route.

  10. robin
    robin March 10, 2017

    Can I offer 2 different mileage reimbursement rates for my employees? I want to give my sales team a higher rate since they are always on the road and others a lower rate since they do not use their cars often.

    • Peggy Emch
      Peggy Emch March 15, 2017

      That’s probably fine, depending on which state you’re in, but it’s always good to check with an employment lawyer.

  11. Maria Valeria
    Maria Valeria March 17, 2017

    My employer reimburses our cell phone on our pay check. It is only $40, but it is being taxed with the rest of my wages….is this ok?

  12. Michael Williams
    Michael Williams March 30, 2017

    My employer gives me an auto allowance of $500 a month which is taxed on my paycheck and a company paid toll tag and gas card but does not pay for any maintenance. I typically drive 3000-4000 miles a month for business purposes, is the company following the federal guidelines properly?

    • Peggy Emch
      Peggy Emch April 3, 2017

      Federal laws don’t require employers to reimburse mileage unless that expense causes an employee to drop below the minimum wage. Track your mileage, multiply it by the IRS mileage rate, then subtract the amount your employer is giving you.

  13. Jason
    Jason April 1, 2017

    I just recently was hired to install flooring homes. When I was hired, I was told I’d be paid my hourly rate and for mileage as well… I also had been using my vehicle to haul material to and from job sites… After my 5 day on the job, I left for lunch and returned as usual. After 30 min of being back to work, another employee began screaming in Spanish and was frantic and unable to understand.
    I quickly ran outside of the home we were working on and immediately noticed smoke coming from my personal truck parked on the street.. I then ran to the neighbors yard and proceeded to hose the truck down.. I managed to put it out myself.. Fire dept. showed up and asked a few questions. I paid to have it towed away and cleaned up the terrible mess left on the street… The home owner felt horrible about this and is sympathetic to my situation.. So my truck which is paid off but only has liability insurance isn’t covered by my insurance company. Is my employer possibly responsible since I was using my truck for the scope of work asked of me? It happened at the job site during work hours with a truck bed of material just pulled from the house we were working on… How the fire started is unclear nor was there an investigation into it.. Where do Igo from here. Is time against me? It’s the only truck I had. Insult to injury.. I had 2k in cash in my truck which was going to my new apartment for rent that very night. I don’t expect to get any returning that but my truck also had all my tools in it. Tools I use to work with every day.. I’m out off transportation to work, I’m out of tools to complete my work and I’m still in a living transition.. any ideas would be appreciated.. thank you in advance…

    • Peggy Emch
      Peggy Emch April 3, 2017

      Hi Jason,

      Call a local lawyer and ask if they or any lawyers they know have time to answer your question for free. Many lawyers do some amount of pro bono work per year and could at least take the time to give you some answers. I wish you the best.

  14. Rosina O'Neill
    Rosina O'Neill April 10, 2017

    Hi I’m a care worker I work roughly 25 hours aweek I don’t get mileage but get the minimum wage surely this is illegal?

    • Peggy Emch
      Peggy Emch April 10, 2017

      You could go over your records with a lawyer and see if there is a minimum wage violation going on.

  15. Rosina O'Neill
    Rosina O'Neill April 10, 2017

    well i hv spoken to unison and they say there is, so he has contacted them just waitin on a response to see what they say. This wil be interesting..

  16. Scott
    Scott April 13, 2017

    Well this has probably been answered in totality many of times by now. But I am going to ask here anyway.

    I work for a company in Ct and this is also where my taxable home is as well. They have me on a long term project in Pennsylvania. Every two weeks I go home to see my family. My company saves money on this transaction by renting me a house in Pennsylvania “The monthly output for them this way is far less than a hotel room.”.

    Is my mileage between my long term project location and my taxable home reimbursable?

    I ask this because recently I had my 2016 taxes done and the accountant told me that those miles are not reimbursable.

    To make matters worse… My employer is charging the client for mileage and not paying me that full amount or even slightly close to government travel rate ($.18 pm)

    Thoughts?

    Thoughts?

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