Mileage reimbursement is a core component of compliance for California employers whose workers use personal vehicles for business purposes. Understanding the legal requirements, IRS guidelines, and best practices can ensure that employees are fairly compensated for their work-related travel.
This guide will walk you through the process of mileage reimbursement in California and how Mosey can elevate corporate compliance.
What Is Mileage Reimbursement?
Mileage reimbursement compensates employees for the costs of using their personal vehicles for business purposes. These costs typically include gas, maintenance, depreciation, and insurance.
The Internal Revenue Service (IRS) sets an annual standard mileage reimbursement rate that employers can use to determine reimbursement amounts. California law requires employers to reimburse employees for all necessary expenses incurred while performing job duties, including mileage. However, the state demands far more than the IRS’s guidelines.
What Are the IRS’s Mileage Reimbursement Rates for 2025?
The IRS generally revisits mileage reimbursement rates yearly to keep up with inflation and the cost of living. For 2025, the IRS standard mileage rates are:
- $0.70 per mile driven for business use (up 3 cents from 2024).
- $0.21 per mile driven for medical or moving purposes (same as 2024).
- $0.14 per mile driven in service of charitable organizations (same as 2024).
Employers who reimburse at or above the IRS rate typically avoid tax complications. Most California employers refer to the IRS rates to set their own, but California employers should ensure their reimbursements cover actual expenses if the IRS rate falls short.
What Are California’s Mileage Reimbursement Laws?
California law goes beyond the federal guidelines for mileage reimbursement. Under California Labor Code Section 2802, employers must reimburse employees for all necessary expenses incurred during the course of their jobs, including vehicle-related costs.
That means employers must fully cover business-related mileage costs. Reimbursements must also reflect actual expenses rather than a flat rate, and employees can seek additional reimbursement if the standard rate does not fully compensate them.
Employers cannot waive reimbursement obligations through contracts or agreements. For example, you can’t ask an employee to sign something that states that you have limited liability for business travel costs or that you have no responsibility for maintaining their vehicle.
When Do Employers Need To Reimburse Mileage?
Employers must reimburse mileage whenever employees use their personal vehicles for job-related duties, such as:
- Traveling between work locations
- Attending client meetings
- Running business-related errands
- Transporting work supplies or equipment
Employers are not required to reimburse employees for non-business travel, like:
- Commuting between home and a regular worksite when they’re not on the clock
- Running personal errands during business travel
- Mileage covered by other reimbursements (like per diem or stipends)
It’s best to clearly communicate your reimbursement policy to your employees to avoid misunderstandings. Simultaneously managing reimbursement with per diem or stipends can be confusing, so it also helps to clearly explain how both systems interact.
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How To Calculate Mileage Reimbursement as a California Employer
There are multiple ways to calculate and reimburse mileage expenses. In California, the IRS standard calculation is usually only sufficient if you seldom ask employees to use their own vehicles for work.
If you regularly ask employees to use their personal vehicles for work, they’re likely to incur more related expenses. Consider the wear and tear on their tires and the mileage that builds up toward their next required oil change. It all adds up over time.
Use the IRS Standard Rate
The simplest method is to multiply miles driven for work by the IRS rate ($0.70 per mile in 2025). That will look like:
500 business miles × $0.70 per mile = $350 reimbursement
This method is commonly used by employers who infrequently ask employees to use their personal vehicles for business purposes, as it’s easy to administer and tax-free in most circumstances.
The Actual Expense Method
Some employers choose to reimburse employees based on actual expenses incurred, especially if they frequently ask employees to use their cars for work. You’ll take actual expenses for gas, maintenance, depreciation, and insurance and pay a percentage based on the frequency of an employee’s car’s use for business.
This method requires detailed recordkeeping but may be necessary if the IRS rate does not sufficiently cover costs.
Mileage Stipends
Some employers offer a fixed monthly car allowance instead of tracking mileage. However, employees may still be entitled to additional reimbursement if this amount does not fully cover their expenses.
Review instances of employees being required to use their own cars and consider whether a mileage stipend is a sound choice for your situation.
What Are the Best Practices for California Mileage Reimbursement?
California mileage reimbursement laws can make mileage compliance a bit of a challenge. After all, the state holds employers to a higher level of responsibility than the federal minimum, meaning employers must be very thorough in their reimbursement processes.
Maintain Accurate Mileage Logs
Employees should keep detailed mileage records, including the date of travel, starting and ending locations, the reason for the trip, and how many miles the employee drove for the trip.
It’s also a good idea to document things like the average cost of fuel at the time the trip was taken and copy any receipts related to vehicle use.
Tracking apps or logbooks can also simplify this process. Most employers find it more convenient to use apps or digital tools, as the data can easily be streamlined and accessed from anywhere at any time.
Reimburse in a Timely Manner
California labor laws require prompt reimbursement of business expenses. That means you can’t wait until the end of the year to reimburse all travel expenses. Employers should set a consistent reimbursement schedule, like bi-weekly or monthly, to ensure compliance.
Clearly Communicate Your Policies
It’s important to implement a policy that’s compliant with California law and easy to explain to your employees. Make sure they’re aware of eligible travel expenses and mileage tracking requirements. You can also include this information in your California employee handbook.
Employees should be aware of how they’ll be reimbursed and when they can expect to be reimbursed after a work-related trip. A detailed policy helps avoid misunderstandings and legal disputes down the road.
Get a lawyer-approved mileage reimbursement policy.
With Mosey, you can create state-specific handbooks with all the required policies in just a few clicks.
Consider a Hybrid Approach
Some businesses use a combination of IRS rates and actual cost reimbursement to ensure fairness.
For example, employees who drive high-mileage routes may receive additional compensation beyond the IRS rate. On the other hand, employees who occasionally drop off small packages at another office they pass on their way home may not need more than the minimum.
What Are the Tax Implications of Mileage Reimbursement?
Proper mileage reimbursement is generally not taxable if it meets IRS guidelines. However, non-compliant reimbursements may be subject to payroll taxes.
Employers should use IRS-compliant reimbursement methods to avoid tax complications, keep detailed records of reimbursement requests and payments, and ensure reimbursements do not exceed IRS rates unless additional documentation supports higher costs.
Documentation is the most important aspect of tax compliance. Carefully review the IRS reimbursement guidelines and use them as the basis for your reimbursement policy.
Since California law requires you to fully and totally reimburse employees who use their personal vehicles for business, you must be careful in your documentation and calculations to avoid non-compliance.
Stay Compliant With Mosey
California employers must go beyond federal guidelines to ensure proper mileage reimbursement. By maintaining accurate records and using fair reimbursement methods, businesses can stay in line while keeping employees fairly compensated.
Handbook compliance can be confusing, but it doesn’t need to be. Mosey makes compliance easy with Employee Handbooks. Automate a multi-state compliant handbook with lawyer-approved policies customized for your employees. Adhere to mileage reimbursement laws, like those in California, and easily edit your handbook as policies change. Schedule a demo with Mosey to learn how we can upgrade your organization’s approach to compliance.
