Automobile Expense Reimbursement
Issue # 59
June, 16, 2008
Automobiles, whether company owned or owned by employees and used for company business, present a liability risk to the organization. California employers may also be exposed to paying for damages to employees' cars, and have limited ability to require proof of any significant liability insurance from the employee, unless there is a mileage expense reimbursement policy in place.
Labor Code §2802
Labor Code §2802 states in relevant part, that: "An employer shall indemnify his employee for all that the employee necessarily expends or loses in direct consequence of the discharge of his duties as such, or of his obedience to the directions of the employer . . "
According to the Division of Labor Standards Enforcement, this includes automobile expenses, including the costs of any loss or damage to an employee's automobile while he is on company business. The Division will accept the mileage reimbursement used by the Internal Revenue Service as reasonable to cover the operating costs incurred by the employee in the operation of a personal vehicle for business purposes.
Damage to Employees Vehicle
The Division has also described the position it will take if there is no agreement to pay a reasonable mileage reimbursement. In such a case, the Division would require the employer to reimburse the employee for the actual costs incurred in operating the vehicle in the service of the employer. These costs would include losses due to accident or theft while the vehicle is being used for business purposes.
Insurance
A good risk management practice for employers is to require employees who drive their cars on company business to carry liability insurance with a limit higher than the minimum state requirements. This is to provide some additional protection to the employer in the event of lawsuits arising from an accident, and to assure that the employee is financially responsible as well. In his opinion letter of November 5, 1998, D.L.S.E. Staff Counsel Michael S. Villeneuve responded to an employers inquiry requiring employees to purchase excess automobile insurance in part as follows:
"As long as the employer reimburses the employee for the cost of the insurance and does not dictate which company supplies the insurance, the Labor Code does not prevent the employer you describe from requiring its employees to obtain insurance beyond the legal minimum."
The letter goes on to reference the IRS mileage allowance as being considered a reasonable mileage reimbursement covering operating expenses incurred.
Free for the asking . . . .
For a sample "Employee Vehicles Used on Company Business" policy, including the provision for mileage reimbursement, send your request to me at ed@kempkey.com and I will email the document to you.
Kempkey Insurance Services goes beyond insurance by designing and implementing risk management programs for growth oriented businesses. We help our clients maximize the value of their insurance dollars and minimize their potential for unwanted surprises. Ed Kempkey can be contacted at (888) 536-7539 extension 2188, or at ed@kempkey.com.