Whether an employer must reimburse an employee for mileage depends on federal law, state mandates, and internal company policies. There is no simple, universal requirement across the United States. An employee’s right to reimbursement is determined by a baseline federal standard, which is often overridden by more protective state legislation. Understanding these variations is necessary to ensure employees are not inadvertently funding their employer’s operations with personal funds.
The Federal Standard for Reimbursement
The Fair Labor Standards Act (FLSA) sets the foundation for wage and hour rules nationwide, but it does not mandate that employers cover business expenses like mileage. Federal law only requires reimbursement if the expense causes an employee’s net pay to fall below the federal minimum wage rate for the hours worked. This is known as the “effective minimum wage” test, and it acts as a floor for employee compensation.
An employer cannot require a non-exempt employee to incur a work-related expense that reduces the employee’s hourly rate below the legal minimum. If an employee earns close to the minimum wage, and unreimbursed mileage lowers their take-home pay beneath that threshold, the employer must reimburse the difference. This federal requirement focuses only on ensuring minimum wage compliance and does not require full reimbursement for all business driving costs. For most employees earning significantly above the minimum wage, federal law provides no protection for unreimbursed mileage.
Where State Laws Provide Greater Protection
Many states have enacted laws that move beyond the federal minimum wage test, providing greater protection for employees who use their personal vehicles for work. These state laws generally mandate that employers must indemnify employees for all necessary business expenses regardless of the employee’s wage rate. This “indemnification” standard means the employer must cover the costs associated with using a personal vehicle, such as fuel, maintenance, and insurance.
States like California, Massachusetts, and Illinois require employers to reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” This broad language applies to all employees in those states, creating a mandatory reimbursement standard for mileage that is stricter than the federal rule. Failure to provide full reimbursement for business mileage in these jurisdictions can lead to wage claims and legal action, regardless of whether the employee’s pay drops below the minimum wage.
Distinguishing Between Commuting and Business Travel
Mileage reimbursement claims require correctly classifying the travel, as the law distinguishes between commuting and business travel. Commuting mileage, the distance an employee travels from home to their fixed primary workplace, is nearly always considered a personal expense and is not reimbursable. The Internal Revenue Service (IRS) views this travel as a non-deductible personal cost, even in states with strict expense laws.
Business mileage is reimbursable and includes travel necessary for job duties that occurs after the start of the workday. Examples include driving between two work locations, traveling from a main office to a client’s site, or running work-related errands. If an employee uses their home as their primary place of business, travel from the home office to another work site may qualify as reimbursable business travel. Separating these two types of travel is necessary for accurate reimbursement and compliance with tax and labor laws.
Understanding the Mileage Rate and Calculation
When an employer must reimburse for business mileage, the amount paid is often based on the IRS Standard Mileage Rate (SMR). This rate is determined annually by the IRS and is intended to cover the variable costs of operating a vehicle, such as gasoline and maintenance, along with fixed costs like depreciation and insurance. This rate fluctuates yearly to reflect changes in the cost of vehicle operation.
Employers are not legally obligated to use the SMR, but they must provide a “reasonable” reimbursement that covers the employee’s actual costs of using their personal vehicle for work. Reimbursement at the SMR is common because it is an IRS-approved rate that is not considered taxable income for the employee. Companies may use alternative methods, such as a Fixed and Variable Rate (FAVR) program, provided the chosen method accurately approximates the employee’s expenses.
Documentation and Record-Keeping Requirements
The responsibility for substantiating a mileage claim rests with the employee, and proper documentation is the foundation of any successful reimbursement request. For a claim to be valid, the employee must maintain a detailed log that records specific information about each business trip. Failure to provide adequate documentation is a primary reason for reimbursement denial.
The records must include the date of the trip, the total distance traveled, the starting point and final destination, and a clear business purpose for the travel. This log must be recorded at or near the time of the trip. Employees often use physical mileage logs or specialized tracking applications to ensure the accuracy and completeness of their records, which is necessary for the employer’s compliance with IRS requirements.
Steps to Take If Reimbursement Is Denied
If an employee believes they are legally owed mileage reimbursement and the employer has refused to pay, the first step is to address the issue internally. The employee should review the company’s expense reimbursement policy and submit a formal request or complaint to Human Resources or management. Often, a denial is a result of a misunderstanding or insufficient documentation, and an internal discussion can resolve the matter.
If the internal process fails, the employee has recourse through government agencies. If the unreimbursed expenses caused the employee’s pay to drop below the federal or state minimum wage, a wage claim can be filed with the U.S. Department of Labor’s Wage and Hour Division. In states with mandatory expense reimbursement laws, the employee can file a wage claim with the relevant State Department of Labor, which may initiate an investigation. If administrative remedies fail, the employee’s final option is to consult with an employment attorney to pursue litigation.