You’re a hardworking employee who frequently travels or incurs expenses for your job. You’ve diligently kept track of every receipt, mileage log, and business expense, but when you submit your expense report, your employer refuses to reimburse you. Frustrating, right?
Unfortunately, this situation is all too common, and it’s essential to understand your rights and your employer’s obligations regarding expense reimbursement.
What is Expense Reimbursement?
Expense reimbursement is when an employer repays an employee for legitimate business expenses incurred while performing their duties. These expenses include travel costs, supplies, equipment, professional development fees, and more.
Typically, employees submit expense reports with supporting documentation, such as receipts, to their employer, who then reviews and approves the expenses before reimbursing them.
This process ensures that employees aren’t shouldering the financial burden of business-related costs out of their own pockets.
Federal Laws and Regulations Surrounding Expense Reimbursement
There is no federal law that explicitly requires employers to reimburse employees for business expenses. However, the Internal Revenue Service (IRS) has guidelines for what they call “accountable plans,” which are expense reimbursement policies that meet certain criteria.
Under an accountable plan, reimbursements are not considered taxable income for the employee, provided that:
- The expenses have a legitimate business purpose.
- The employee substantiates the expenses with proper documentation.
- The employee returns any excess reimbursement within a reasonable time.
If an employer doesn’t have an accountable plan in place, reimbursements may be considered taxable income for the employee, which can lead to additional complications come tax season.
State Laws on Expense Reimbursement
While the federal government may be silent on the matter, several states have stepped up to protect employees’ rights regarding expense reimbursement. In California, California Labor Code section 2802 requires employers to reimburse employees for all necessary expenditures or losses incurred in the discharge of their duties.
This means that if you’re a California-based employee and you incur reasonable business expenses necessary to perform your job, your employer is obligated to reimburse you under California law. Failure to do so can result in penalties and potential legal action against the employer.
Types of Reimbursable Expenses
But what qualifies as a reimbursable expense? Generally, any cost incurred for a legitimate business purpose should be eligible for reimbursement. The California Labor Code specifically states:
§ 2802. (a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
And that:
(c) For purposes of this section, the term “necessary expenditures or losses” shall include all reasonable costs, including, but not limited to, attorney’s fees incurred by the employee enforcing the rights granted by this section.
Common Examples of Necessary Employee Expenditures
Travel Expenses:
- Mileage or gas expenses for business-related travel
- Airfare, lodging, and meals during business trips
- Ground transportation (taxis, rideshares, rental cars)
Business Supplies and Equipment:
- Office supplies (pens, paper, printer ink, etc.)
- Computers, software, or other equipment necessary for work
- Specialized tools, gear, or clothing required for your job
Professional Development and Training:
- Tuition or fees for job-related courses or certifications
- Conference or seminar registration costs
- Membership dues for professional organizations
The key factor in determining whether an expense is reimbursable is its direct connection to your job duties and your employer’s business. As long as you can demonstrate that the expense was necessary and reasonable for the performance of your work, it should be eligible for reimbursement.
California Court Rulings on Expense Reimbursement
While California law is purposefully vague on what constitutes a “necessary” business expense, California courts have consistently upheld the state’s labor law mandating expense reimbursement for employees.
In Estrada v. FedEx Ground Package System, Inc. (154 Cal. App.4th 1 (2007)), the court found that FedEx had misclassified its delivery drivers as independent contractors. As employees, the drivers were entitled to reimbursement for vehicle costs, fuel, and other job-related expenses.
Similarly, in the case of Espejo v. The Copley Press, Inc. (13 Cal. App.5th 329 (2017)), the court ruled that delivery drivers are entitled to a mileage reimbursement.
These cases demonstrate California’s strong stance on protecting employees’ rights to expense reimbursement and the potential legal consequences for employers who fail to comply with the state’s labor laws.
Challenges and Pitfalls in Expense Reimbursement
Even with a well-crafted policy in place, employers and employees alike may encounter challenges when it comes to expense reimbursement.
Common pitfalls include:
- Delayed or Denied Reimbursements: Employees may experience frustration and financial strain if their reimbursements are consistently delayed or denied without proper justification.
- Lost or Missing Receipts: It’s easy to misplace receipts, especially during extended business travel, which can complicate the reimbursement process.
- Unclear Policies or Inconsistent Enforcement: Ambiguous or poorly communicated policies can lead to confusion and disputes, while inconsistent enforcement can breed resentment among employees.
To mitigate these issues, employees should:
- Familiarize themselves with their employer’s expense reimbursement policy and follow it diligently.
- Keep meticulous records and documentation for all business expenses.
- Promptly address any issues or discrepancies with their manager or HR department.
- Work with an experienced employment attorney to understand their rights under applicable state laws.
While the federal government may not mandate expense reimbursement, several states – including California – have stepped up to protect this vital employee right. Importantly, the California legislature adopted California Labor Code Section 2804, which states that reimbursement of employee expenses cannot be waived. This means, among other things, that even if an employee did not follow the procedure for reimbursement but can show that a reimbursement is owed, the employer must still pay the reimbursement.
At Malk Law Firm, we’re dedicated to defending the rights of workers by ensuring that employers comply with all applicable labor laws. If you’re facing issues with expense reimbursement or any other employment-related matter in California, don’t hesitate to contact us.
Our team of employment professionals is here to advocate for you and help you navigate the legal complexities of the workplace. Contact us today to schedule a free case review and take the first step toward protecting your rights as an employee.