New IRS Optional Standard Mileage Rate Effective July 1, 2008 Through December 31, 2008

As of July 1, 2008, the IRS optional standard mileage rate for business-related use of a personal automobile increased from 50.5 cents per mile to 58.5 cents per mile for the final six months of this year. In increasing the rate, the IRS recognized that while gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

California Labor Code section 2802 requires that employees be reimbursed for all reasonable and necessary businesses expenses incurred in the course of their employment. Although there are various acceptable methods of providing mileage reimbursements to employees in compliance with this statute, the IRS optional standard mileage rate is often favored by employers due to the presumption of reasonableness attached to it by the Department of Labor Standards Enforcement. But even when employers use this method of reimbursement, employees must be provided the opportunity to challenge the rate as applied to them. If an employee proves their expenses are higher than the IRS rate and reasonable, the employer must make up the difference. If the employer pays less than the IRS rate, then it bears the burden of showing the rate used is reasonable.

Another method, the “actual expense method,” is often an undesirable option because it requires the employee and the employer to determine the actual cost of driving the particular car used by the employee, including gas, maintenance, and insurance. Alternatively, the employer and the employee may agree to the rate of reimbursement. Even under this method the employee must be given the chance to challenge any reimbursement received to the extent it does not cover the employee's actual, reasonable expenses. Finally, an employer may also use a “lump-sum payment” wherein the employer pays a fixed amount for automobile expense reimbursement without the employee submitting any information to the employer about work-required miles driven or automobile expenses incurred. This method is allowed provided the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. As with all of the other methods, excepting the actual expense method, the employee must be permitted to challenge the amount of a lump-sum payment as insufficient.

Although employers have increased flexibility in how they reimburse employees in compliance with section 2802, an employer must ultimately ensure that its employees are fully reimbursed for all reasonable and necessary costs incurred during their employment.