The obligation for employers to reimburse employees for business-related mileage depends heavily on federal and state labor laws. While some companies offer mileage reimbursement as a policy, the law mandates it only under specific conditions. Understanding these legal requirements determines when an employer must cover the costs of an employee using a personal vehicle for work tasks.
Federal Guidelines on Expense Reimbursement
The Fair Labor Standards Act (FLSA) provides the foundational federal rule for expense reimbursement, which is generally narrow. Under the FLSA, an employer is only required to reimburse an employee’s business expense if the lack of reimbursement causes the employee’s net pay to fall below the federal minimum wage. This requirement is rooted in the “free and clear” rule, which dictates that the full minimum wage must be paid without being reduced by the cost of required tools or expenses.
This standard means the FLSA does not compel the employer to cover mileage for employees earning significantly more than the minimum wage. Out-of-pocket expenses are treated as a deduction from wages to test the minimum wage floor. If the remaining pay is still above the minimum wage, the federal law considers the employer compliant.
Key State Laws Requiring Mileage Reimbursement
Many states have enacted laws that go significantly beyond the federal FLSA standard. These laws mandate that employers reimburse all necessary business expenses regardless of the employee’s wage rate. These state statutes ensure employees do not bear the financial burden of costs incurred for the employer’s benefit, a principle that applies strongly to business mileage.
California Labor Code Section 2802 requires employers to indemnify employees for all necessary expenditures incurred while discharging their duties. This mandate includes mileage, cell phone use, and other costs. Massachusetts also requires reimbursement for all transportation expenses when an employee is directed to travel during the workday.
Illinois requires employers to reimburse employees for all “necessary expenditures” incurred within the scope of employment under the Illinois Wage Payment and Collection Act (IWPCA). This includes reasonable costs required of the employee that benefit the employer. Employers in these states must ensure their policies fully cover employee costs, as failure to do so can lead to significant liability.
Business Travel Versus Commuting
A significant distinction in mileage reimbursement is the difference between non-reimbursable commuting and required business travel. Commuting refers to the travel an employee makes from home to a fixed, regular workplace at the beginning and end of the workday. This travel is considered a personal expense and is not subject to mandatory reimbursement.
Travel that occurs after the employee has arrived at the first work site and travels to other locations for the employer’s benefit constitutes reimbursable business travel. Examples include traveling between different job sites, making deliveries, or visiting clients during the workday. If an employee reports to a temporary work site that is not their regular office, any travel distance exceeding their normal commute may also qualify for reimbursement.
A common exception involves the “home office,” where an employee’s home is considered their primary place of business for IRS purposes. In this scenario, travel from the home office to other business locations, such as client sites, is considered business travel rather than commuting. This principle helps define the start and end point of reimbursable work-related travel.
Practical Steps for Tracking and Calculating Mileage
The most common method for calculating mileage reimbursement involves using the standard mileage rate set annually by the Internal Revenue Service (IRS). This rate is intended to cover the total costs of operating a vehicle, including fuel, maintenance, insurance, and depreciation. For instance, the business standard mileage rate for 2025 is 70 cents per mile.
Employers can also choose the “actual cost” method, which requires the employee to track all vehicle-related expenditures, such as gas receipts and repair bills. The reimbursement is calculated based on the percentage of total miles driven for business purposes. This method is more complex but may be necessary in states like California if the IRS rate does not fully cover an employee’s actual expenses.
Accurate record-keeping is necessary for compliance. To substantiate a mileage claim, the employee needs to maintain a detailed log that includes the date of travel, the destination, the business purpose, and the total mileage driven. This documentation ensures the reimbursement is not treated as taxable income.
Employee Recourse for Non-Compliance
If an employer fails to provide required mileage reimbursement, employees have clear avenues to recover unpaid expenses. The primary method is filing a wage claim with the relevant state Department of Labor. If the unreimbursed mileage caused the employee’s pay to dip below the federal minimum wage, a claim may also be filed with the federal Department of Labor under the FLSA.
Many state laws allow for significant penalties against employers who violate reimbursement requirements. For example, the Massachusetts Wage Act allows successful employees to be awarded treble damages, meaning the employer may have to pay three times the amount of the unpaid expenses. In California, employees can recover the unreimbursed expenses along with interest and reasonable attorney’s fees.
In addition to administrative claims, employees can pursue civil litigation, often as a class action lawsuit, to recover unpaid expenses. Consulting with an employment attorney provides guidance on the best course of action and helps employees understand the remedies available under state and federal law. Employees are protected from retaliation when pursuing a claim for legally required reimbursement.