HR Newsletter

Pay

June 29, 2022

Employees may drive their personal vehicles as part of their job duties or for work-related travel. In such cases, do you have to reimburse these employees for vehicle-related expenses? To help you find out, we compiled these frequently asked questions.

Q: We operate a restaurant that delivers. Do we have to reimburse employees for the gas, maintenance, and depreciation costs they incur when delivering food using their own cars?

A: Some states expressly require employers to reimburse employees for business expenses, including the gas, maintenance, and depreciation costs incurred when driving on company business. Even if your state doesn't require reimbursement, expense reimbursement might be necessary to satisfy the federal Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements for non-exempt employees. In most cases, under the FLSA, any work-related expense incurred by an employee that would bring the employee's pay below the minimum wage (or cut into overtime pay) must be reimbursed. Generally, it is a best practice to reimburse all employees for any reasonable business expenses they incur.

Note: The U.S. Department of Labor (DOL) has said that under the federal law, employers typically must only reimburse the costs that vary based on the miles driven, such as gas, maintenance, and depreciation. Employers aren't required to reimburse employees for registration fees or insurance (unless the employer requires greater insurance than required by state law mandates or an insurance rider is required).

Q: How would I reimburse employees who drive their personal vehicles for business purposes?

A: When reimbursing employees for business-related driving, many employers use the IRS standard mileage rate. Alternatively, some employers calculate the actual cost and reimburse employees accordingly.

Q: What is the IRS standard mileage rate? What does it include? Do I have to use it?

A: The 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 employers to reimburse their employees for mileage.

The IRS standard mileage rate is optional for employers and includes the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil.

Q: What is the IRS standard mileage rate for 2022?

A: From January 1, 2022 through June 30, 2022, the IRS standard mileage rate is 58.5 cents per mile. From July 1, 2022 through December 31, 2022, the IRS standard mileage rate is 62.5 cents per mile per mile. The rate is typically adjusted annually but sometimes, like in 2022, the IRS makes midyear changes.

Q: What documentation do I need to retain to use the IRS mileage rate?

A: Employers should require employees to maintain and submit a log of any work-related miles driven, including the date and the business reason.

Q: The IRS rate doesn't include parking and tolls? How do I handle those?

A: Employees would need to submit a separate reimbursement request for parking and tolls.

Conclusion:

If your employees drive their personal vehicles for work-related reasons, make sure you are reimbursing them in accordance with federal and state law.