California State Mileage Reimbursement Requirements for Businesses

California law requires that all employees be reimbursed for employer-related expenses, including mileage reimbursement. Employers will often use the rate set forth by the IRS though they are not required to do so. They may pay a rate lower or higher than the current rate, however if an employee is paid at a higher rate, the IRS deems the excess as taxable wages.

The California Division of Labor Standards (DLSE) made the determination that absent any contrary evidence, the current IRS rate will satisfy the required compensation. According to the DLSE if an employer were to use the current IRS rate, they would be satisfying their obligation to paying travel related expenses, rather than paying the actual expenses incurred by employees using their personal vehicles for business travel. In contrast, the DSLE as has published saying if an employee and employer can come to an agreement regarding travel expenses, the agreement can be substituted for mileage compensation.

Although in late 2005, the California court of appeals said that increased salary and commissions might also be a substitute for the mileage reimbursement law. So long as the compensation, withholding subsequent taxes, is enough to cover the transportation expenses incurred by the employee.

The Department of Personnel Administration establishes the rate per mile payable to injured employees for medical and medical-legal travel expenses. Recently a tentative collective bargaining agreement amended the department’s travel rules to establish a rate of $.445 cents per mile; though contract will have to be ratified by the State legislature in August 2006. The change will be effective for travel on or after July 1, 2006, regardless of the date of injury.

This is the first time in 5 years that the rates have been amended. The rate has been at $.34 per mile since the beginning of 2001.

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