Written by Galen T. Shimoda and Erika Sembrano
An employer cannot pass their operating expenses on to their employees. Labor Code section 2802 provides that an employer must indemnify its employees “for all necessary expenditures and losses incurred by the employee in direct consequence of the discharge of his or her duties . . . .”
In order to claim reimbursements pursuant to section 2802, an employee must be acting within the scope of his or her employment. If the employee’s conduct incurring the expenditure or loss is substantially different from his or her regular duties of employment, the employee will not be reimbursed for that expenditure or loss. An example of when an employee would not be reimbursed is when that employees is on a business trip and attends to personal business, such as taking a relative to dinner or a movie.
The expenses or losses must be necessary in performing the duties of his or her employment. A very common example is when employers require employees to use an automobile in order to perform work duties, such as making deliveries or traveling between different worksites. Similarly, traveling to different locations will certainly create expenses for the employee, including vehicle rental, lodging, and meals.
The more complicated issue arises when employers must decide how to compensate their employees with respect to their automobile expenses. For example, as laid out in the California Supreme Court case Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal.4th 554 (2007), there are three general methods for compensating automobile expenses: 1) the actual expense method, 2) the mileage reimbursement method, and 3) the lump-sum method.
The first two have been well established. The actual expense method requires employees to keep detailed and accurate records of amounts spent in fuel, maintenance, repairs, insurance, etc.; this must then be submitted to the employer to calculate the total reimbursement amount due. The mileage reimbursement method instead requires the employee to keep a record of the number of miles driven to perform job duties. The employer calculates the total cost usually by using a predetermined cost per mile set by the Internal Revenue Service (IRS), which is based on the national average expenses for fuel, maintenance, repairs, insurance, etc. Because the mileage reimbursement method is naturally less accurate than the actual expense method, an employee may challenge the resulting reimbursement payment as calculated via the mileage reimbursement method. If the employee can show that he or she was paid less than what was reimbursed, the employer must then pay the difference.
The last method, the lump-sum method, only became a recognized method of reimbursement when Gattuso was decided in 2007. Under this method, an employee does not need to submit any information to the employer; instead, the employer only pays a fixed amount for reimbursements. This amount is based on the employer’s understanding of the job and its duties. The Gattuso Court ruled that the lump-sum method is in accordance with Labor Code section 2802 so long as the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. Thus, employers are now able to pay their employees a pre-determined amount of money to cover any reimbursements. However, the Court also cautioned that an employee can still challenge the amount he or she received; if the employee can show that he or she was paid less than what was owed, the employer must still make up the difference in order to provide full reimbursement.
Other examples of reimbursable expenses include payment for tools and other equipment, uniforms, computers and other electronics, lodging and travel expenses, and even insurance. There are also trickier categories, such as internet usage, where the line between personal use and business use may not be clear.
Although employers may choose from different methods to reimburse their employees, an employee must ultimately be reimbursed in full for any expenses or losses necessarily incurred when the employee is performing his or her job duties. If you believe that you have claims for unpaid reimbursement expenses, , please contact our office to have your claims evaluated..