Understanding Expense Reimbursement Law California

Article 2, Section 2802 of the California Labor Code is colloquially known as “California’s Expense Reimbursement Policy”. Subsection (a) of the Reimbursement Policy, entitled “Obligations of Employer,” requires employers to, among other things, “indemnify” or in other words, pay for initially or reimburse, “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.”

That sounds like a mouthful of legalese, and as an employer you may be left wondering exactly what you need to do to stay in compliance with California labor laws. Thankfully, AEIS’ HR partners are here to help you make sense of California’s expense reimbursement policy.

What Does California’s Expense Reimbursement Law Say?

California’s Labor Code requires employers to reimburse their employees when employees have paid for anything out of their own pocket that is sufficiently work-related. This law was passed by the California Legislature to keep companies from reallocating costs associated with their business to their employees.

What does the law mean when it says: employers must reimburse employee expenditures made by an “employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer”? Let’s break this down.

Tucker v. Cooper, a 1916 case heard by the Supreme Court of California, has helped to shape interpretation of the policy. In its opinion, the Supreme Court of California has explained “It is sufficient to establish liability under this section that the plaintiff was performing services at the request of and for the benefit of the defendant, and that the plaintiff was under the direction and control of the defendant while performing the services.”

So anytime your employee is completing duties within the scope of their employment, or some act that would benefit you as an employer, you’re likely going to be liable for expenses they incur in the process. Most times, this is true whether you’ve directly preauthorized the expense and amount or not.

Even if your company already has a policy of attempting to avoid this dilemma altogether, perhaps by allowing employees authorized to make purchases to carry a company credit card, you should still be aware of this particular section of the California Labor Code. You can never know for sure what will come up, or whether an employee will be without a card and make a payment that should be reimbursed.

What Should Employers do in Order to Stay in Compliance with California’s Expense Reimbursement Policy?

To make life easier for your human resource professionals and your employees alike, one of the best steps you can take is to set out a reimbursement policy and publish it in your employee handbook. It’s a good idea to err on the side of generosity when making reimbursements, and grant reimbursement for all expenses that an employee could reasonably believe was necessary, and that were incurred in direct relation to their job duties.

Your reimbursement policy can set out a reasonable per diem, for example, that permits employees to spend $100 daily on food and other necessities (besides travel and other major costs) when they’re traveling for work. Here are some other things you should consider for clear coverage in your reimbursement policy:

• Uniforms and required shoes and other accessories or equipment, such as safety gear
• Mileage if using a personal vehicle, gas if using a work vehicle, and tolls along the route in any event (keep in mind the 2022 federal standard for reimbursement is $0.585 per mile)
• Personal cell phone bills or at least a percentage of the bill, if the employee uses the phone for work. You may also consider providing a separate work phone to ensure privacy on both ends.
• Conference or seminar fees, especially if you recommend or require attendance.
• Travel expenses, although you can pay for as much as you are able to beforehand.
• Expenses incurred by your employees when they are entertaining current or prospective clients, such as restaurant or theatre bills.
• Postage
• Chairs, desks, laptops, printers, paper, printer ink, and other office equipment, especially if the employee is working remotely without access to company-provided equipment.
• The cost of software or subscriptions needed for the job, such as Adobe Acrobat, Photoshop, Zoom, and WebEx.

When your organization is reimbursing its employees, it’s perfectly fine to add on the reimbursement to their paycheck or salary. As long as the reimbursement is timely and the reimbursement pay is itemized so that it can be separated from the regular wages or salary the employee has earned, the reimbursement is proper.

What Should Employers Avoid in Order to Stay in Compliance with California’s Expense Reimbursement Policy?

This may seem fairly obvious, but employers should not attempt to create an employment or other contract that serves to have employees abandon their right to the legally required reimbursements laid out in the California Labor Code. If an employer has a provision to this effect in any contract, a court will declare that provision null and void. So even if you write one, it will not have effect – you’ll still need to make reimbursements where appropriate.

Employers also can’t terminate or otherwise punish employees who have requested reimbursement for appropriate expenses. As an employer, the best choice is to err on the side of caution and clarify your reimbursement policy unless the incurred expenses from a particular employee have become frequent and obviously flagrant and egregious.

What Happens if an Employer Does Not Reimburse Their Employees Pursuant to California’s Expense Reimbursement Policy?

As a successful business, you know it’s always in your best interest to remain in compliance with state and federal labor laws. Not only does it protect your employees, but it also protects your company from costly lawsuits and all the litigation fees that come with defending your business in court. Employers that find themselves in violation of California’s Labor Code could potentially face lawsuits, and even class action lawsuits if multiple employees allege the same violations.

If violations are found, a court can hold your company liable for the appropriate reimbursement, interest accrued from the date on which the employee(s) incurred the necessary expenditure or loss, attorneys’ fees and court costs from both sides, and citations from the State of California.

What to Do if You Have More Questions about Your Reimbursement Policy:

Need to be sure you’re in compliance with California law? You’ll be in good hands with AEIS’  Human Resources Partners. . Give AEIS a call at (650) 348-6234, contact AEIS by email at team@aeisadvisors.com, or fill out a contact form.

Disclaimer: Any information related to compliance, laws and regulations, or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.