California Supreme Court Decides Lump Sum Expense Reimbursement is OK

James Peters — Tue, 06 Nov 2007 23:57:57 +0000

Yesterday the California Supreme Court issued its decision in Gattuso v. Harte-Hanks Shoppers, Inc., ruling that employers may reimburse employee expenses in the form of "additional wages" payable in a "lump sum" instead of reimbursing each separate expense for the exact amount incurred.

This case deals with a scenario common to sales employees where the employer simply gives the employee a set automobile "allowance" or a "per diem" payment that is meant to cover the employee's mileage expenses, etc. instead of having the employee submit expense reimbursement requests.

The Plaintiff in Gattuso argued that this was not an allowable method of expense reimbursement and that the payments must be made separately from wages.

Expenses Still Must Be Reimbursed Fully

Under Labor Code section 2802, employers must reimburse all expenses the employee pays for out-of-pocket in carrying out their duties. This includes mileage driven in their own automobile and gas put into a company car. Labor Code section 2804 further states that an employer and employee cannot agree to waive this reimbursement requirement.

The Court held that the employer still must make clear what portion of the salary or commission payments is meant to reimburse the employee for expenses versus compensation for the work performed.

This is because if the amount meant to cover expenses is not enough to cover the actual amount of expenses incurred during a pay period, the employer must pay the employee additional money to make up the difference.

The "Lump Sum" Method is Not for the Lazy Employer

I think that many employers use the "lump sum" method out of laziness, because they (understandably) do not want to process expense reports and write separate checks in varying amounts each month. The employer in Gattuso actually took this a step further and simply increased the employees' commissions by a certain amount to cover expenses.

"Lazy" employers probably should not use this method, however, because regardless of what they pay the employee to cover expenses each month, the employer still has a duty under section 2802 to fully reimburse employees for expenses.

So, the employer has to make sure they pay the employee any additional money owed above and beyond the "lump sum" payment, but they presumably are no longer requiring employees to submit expense reports, so they are unable to determine if they have paid enough.

These employers will have the logistical nightmare of trying to "guess" whether they are complying with the law. The only way to be sure is to have employees submit expense reports each month, compare the totals to the "lump sum" payments and pay out additional monies for any extra reimbursements owed.

By this point, the whole point of using the "lump sum" method has been defeated. For an employer who uses the "lump sum" method and is meticulous in complying with the law, the only difference is that most months employees get a windfall in the form of extra wages if they incur expenses totaling less than their "lump sum".

Gattuso Does Not Change Much

Gattuso does not really change anything under California law, except in clarifying that this "lump sum" payment method is indeed legal.

All California employers (and out-of-state employers with California employees) must still fully reimburse all employees for any and all expenses incurred on the employer's behalf.

Some Income Tax Implications are Unknown

If your employer does use this method to reimburse you for expenses incurred, it might be a good idea to point this out to your accountant or tax attorney because the difference between "wages" and "expense reimbursement" affects California withholding rights and obligations, as well as income tax liability.

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Q&A: Employer Must Reimburse Home Office Expenses

James Peters — Sun, 07 Jan 2007 15:49:46 +0000

Q: I work from a home office in California, but my employer is based in Illinois. I have many business expenses I pay out of my own pocket but my employer refuses to reimburse me for them. Is this legal in California?

--Paying the Company's Bills (CA)

A: In California, Labor Code § 2802 requires all employers to reimburse employees for any business expenses they incur "in direct consequence of the discharge of [his or her] duties". This applies to all employees in California regardless of where their employer is headquartered.

Home Office Expenses

These rules are especially relevant for employees such as yourself who work from a home office. For example, you may be entitled to reimbursement for your home office:

Computer equipment;
Fax equipment;
Office furniture;
Phone line and service;
Cell phone and service;
Internet service;
"Rent" for the use of your home as an office;
Utilities attributable to the home office;
Supplies; and
Any other expenses you pay to operate your home office.

All employees should keep in mind that these rules apply even if they do not work exclusively from a home office. If you regularly work at home on the weekends in your home office, it is quite possible that you are also entitled to reimbursement for these expenses from your employer, although to a lesser extent.

Mileage Reimbursement

All employees are entitled to reimbursement for mileage driven in their personal vehicle on behalf of their employer. Usually this is done on a "per mile" basis, often at the IRS rate, which is currently 48.5 cents per mile.

If you do not drive your own vehicle for work, but instead have a company car or fleet vehicle, you are entitled to reimbursement for any gas you buy for the vehicle, maintenance costs such as oil changes and repairs.

Attorney's Fees

When you bring a claim for unreimbursed expenses in California, you are also entitled to recover any attorney's fees you pay in pursuing your case. This is very helpful to employees because the harder an employer fights the case, the more they will have to pay the employee in the end.