Do we have to reimburse personal auto mileage for business-related trips?

While federal law does not require employers to pay expenses when employees use their own vehicles for business purposes per se, employers must ensure that employees who drive their personal cars for work do not incur expenses that would drop their pay below minimum wage. For example, a pizza delivery driver who is paid minimum wage must also be reimbursed for expenses related to the personal use of his or her vehicle for business purposes under the Fair Labor Standards Act (FLSA) regulation 531.35.

Additionally, some states require employers to reimburse employees for business-related travel expenses, including mileage. As state laws and court rulings are continually developing, employers should routinely check their state laws for compliance. 

The IRS standard business mileage rate is generally used by employers when determining the amount to reimburse their employees. The IRS mileage rate is a maximum rate that employers may use for tax-free reimbursement. Employers that reimburse more than the IRS rate are required to treat any amount above the IRS rate as taxable income to the employee(s). The IRS rate is only a guideline, and employers can choose to reimburse at a rate below the IRS rate.

The IRS rate is adjusted annually for inflation and takes into consideration the insurance, maintenance, licensing and fueling costs of vehicles. Because the rate considers these issues, employees are not obligated to document separate vehicle use costs. If the employee records the dates, mileage and reasons for the business travel, the IRS rate can be used to provide tax-exempt reimbursements. The IRS rate does not include the cost of tolls or parking; therefore, an employer will need to decide if it will reimburse employees for these expenses separately from the mileage reimbursement.