Reimbursing Employees for Vehicle Expenses: What Companies Should Know

Maybe you should just buy a company vehicle. The difficulty of reimbursing employees for mileage and other costs associated with employees’ use of personal vehicles for company business.

If a company allows an employee to use their personal vehicle to conduct company business the company must make sure that employee earns the minimum wage required in the jurisdiction where the employee is employed.

The Fair Labor Standards Act (FLSA) does not explicitly require an employer to reimburse employees for vehicle expenses. However, if the cost of using a personal vehicle for work results in the employee’s wages falling below the minimum wage, failure to reimburse those costs can violate the minimum wage requirement. How these costs are actually to be calculated has yet to be provided by the courts. How then is an employer to know how much the employee should be reimbursed for such costs to keep from violating the FLSA Wage Act? Recently, the 6 th Circuit looked at the issue and though the court did not specify exactly how to calculate these expenses it did provide some guidance in the form of what not to do.

First, the court stated not to utilize the IRS rate, something that companies have been accustomed to for years; and second, it said providing a “reasonable approximation” is not good enough. Next, the court admitted that the vehicle costs are “undisputedly hard to calculate” because they are so individualized, depending on the location of the work, the kind of car being used, and the individual’s driving habits and etc. The court then suggested the use of a “burden shifting process” similar to what is used in discrimination cases, where the employee would be required to make a prima facie showing that the expense reimbursement was inadequate; the employer would then have to establish that the reimbursement “bore a demonstrable relationship” to the employee’s actual costs (which in application must be closer to the actual costs than the “reasonable approximation” test that was just rejected by the court); and last the burden would then shift to the employee to disprove the employer’s reasoning. Currently, an employee does not have to provide the actual vehicle costs – the burden shifting paradigm puts some of the burden of proving costs on the employee – which is only fair. Further, because this burden shifting process moves away from a generalized formula to a more specific individual costs analysis it might prevent class action suits in some jurisdictions. The question still remains, how is an employer to know the costs an employee has incurred (and thus, how much needs to be reimbursed) when the court has stated that the data relevant only to that employee using their vehicle must be taken into consideration? Companies should reach out to their local counsel (who should take into consideration guidance in the appropriate jurisdiction) for assistance with developing their reimbursement process. Alternatively, perhaps it will be easier and provide less risks of a wage lawsuit for the company to provide company vehicles for employees to use for company business. Of course, you will need a policy for that too.

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