The last time I wrote about mileage reimbursement was March 2022. The war in Ukraine had just broken out, and employees were just starting to return to in office work. Gas prices were up, and people were back on the road. The IRS mileage reimbursement rate was 58.5 cents.
And here we are in late 2026 – and we are in another war that has impacted our gas prices. And the federal government raised the IRS reimbursement rate mid year (July 1, 2026) to 76 cents a mile. I suspect it will go up again in 2027. And rightly so, with gas prices blowing through the $7 a gallon mark here in Los Angeles over the summer. I don’t carefully track gas prices, since I have been driving an EV for years now, but I am about to find out since my rental car takes gas.
Why should you, as employers, care? Because employers are required to reimburse their employees for their out-of-pocket costs to operate their vehicles when those vehicles are being used for work purposes, under California Labor Code Section 2802. And when gas prices go up, employees who have not been adequately reimbursed for this expense suddenly become acutely aware of their rights, even when their employers often are not. Their lawyers also know this issue well. So let’s discuss exactly what your obligations are to pay for the costs of your employees’ working drive time.
First, before you all start to panic, you are NOT required to pay for your employee to COMMUTE to work. Let’s define a “commute.” A “commute” is a drive to and from a base of an employee’s operations, such as an office. Or, if an employee works at several locations throughout the day, the commute would be to the employee’s drive to that first job of the day, or back home from the employee’s last job of the day.
So, a true COMMUTE is not compensable, either in time or miles. BUT (there is always a but in law), there are many things that can occur during this drive to change it from being a true commute to a drive that needs to be compensable, both in wage and mileage.
First, if the employee is carrying something related to work with them back and forth, company materials, boxes, inventory, tools, it is arguable that the employee is doing more than just driving. Now they are transporting work materials, potentially making their commute compensable. That is an argument that gets raised in these lawsuits.
Here is another problem. What if the employee previously worked in the office but now is working remotely. But maybe the employee reports to the office very “occasionally,” like for an all-hands meeting. Suddenly, that drive to work may no longer be a commute. It may depend on where their “base” is seen to be. If they are working flex time, partly at work and partly at home, that’s probably okay. But again, the pandemic has changed much in this world.
Next, a drive becomes work if a co-worker is also in the car. Not in the sense of two friends commuting together, but if one employee is tasked to stop and pick up another employee on the way into work. At that point, the drive immediately becomes work-related and is compensable.
Finally, and maybe most commonly, if an employee is tasked to stop and run and errand, to or from work. Or at lunch (which, of course, could also violate a lunch break for a non-exempt employee). When I ask this question of my clients, I often see faces go white. What about employees who drop the Fed Ex on the way home or stop at the bank. “But it’s not even out of their way!” “The bank is a block from their house!” Yes, and that means that entire drive TO or FROM the bank, that is a block from their house, is work related, for both time and mileage. Or maybe you have someone just run product quickly between a few stores. All of these seem like nothing little errands. Maybe you shove a few dollars into someone’s hands out of petty cash. But are you tracking it? Do you have forms? A process?
Labor Code Section 2802 requires that employees (exempt and non-exempt) be reimbursed for all reasonable expenses they incur during employment. With regard to mileage, the California Labor Commissioner looks to the IRS rate as the default for a reasonable reimbursement rate. Now keep in mind that the IRS sets that rate as the maximum you can pay an employee without it being viewed as income to the employee. And in other times, I have suggested to my clients that if they thought the IRS rate was probably higher than what their employees were out of pocket given gas prices, maintenance, license and registration, insurance and depreciation for the kinds of cars and kinds of driving their employees were doing, they should do some math and come up with a different rate and challenge it. It would probably have to be darn close, though.
So let me bottom-line this for you. If you are not paying for every mile that your employees are driving for each and every work-related drive, at the absolute maximum rate of 76 cents, you are sitting on a time bomb. And if you have large forces of employees out there driving, that is a very large bomb. But it’s a risky issue for employers who only have a few employees make these occasional runs, because you are the ones who do NOT carefully track these issues. And now, suddenly, that employee who was squeaky clean on their break policies has an issue that makes them an aggrieved employee for that PAGA case we are trying to fight.
For most of you who don’t have a lot of field employees, this is just a loose end issue. But I don’t like loose ends. Or loose threads, that plaintiff side attorneys can tug on and unravel your wonderfully compliant workplace. And ask your managers – you up at corporate may not know what’s happening on the ground, and who is running these errands to bring the bread into the workplace or run out and get replace that broken wrench. Ask questions. Implement systems. And TRAIN YOUR MANAGERS.
You knew I’d find a way to sneak in a reminder about manager training.
