Reimbursable Expenses

As an employer, do I have to reimburse my employees for all of their expenses? Can I have my employees sign something that says I don’t have to reimburse them?

California law requires employers to reimburse their employees for necessary expenses incurred in the course and scope of their employment. These expenses may include equipment, materials, air travel, hotels, meals and ground transportation.

Employees cannot waive their right to reimbursement, and such an agreement is unenforceable. What you should do is have a clear, written policy that explains how expense reimbursement works at your business.

Your policy should communicate that employees have a right to reimbursement for appropriate business expenses. Your policy can require that expenses over a certain amount are approved in advance, and you should certainly have a process for submitting expenses.

Your policy should also require that employees submit expense reports within a reasonable period of time after the expenses are incurred, and you should likewise process the report and reimburse the expenses in a timely fashion. You may require that employees support each reimbursement request with receipts or other verification.

Although it might seem obvious, your policy should inform employees that misrepresentations involving expense reimbursements will be grounds for discipline and/or termination.

Employees are entitled to reimbursement for up to four years from the date they incur the expense. Some companies choose to pay employees higher wages or salaries so that they don’t have to reimburse expenses separately. Whatever method you choose to use, make sure that you fully reimburse employees for all expenses actually and necessarily incurred.

If an employee is forced to sue an employer to enforce their right to have expenses reimbursed, litigation costs and attorney’s fees may be awarded as a “necessary expenditure” under the law. In other words, not only will you have to pay your employee the reasonable expenses they incurred on the job, but you might also pay their attorney.

It may sound harsh, but consider it one of the many costs of doing business. One of the most common mistakes employers make is to mischaracterize employees as independent contractors to avoid reimbursing business expenses. True independent contractors are self-employed, so they are responsible for their own expenses.

Whatever you do, do not misclassify your employees as independent contractors. It’s a serious violation of federal and state laws, and you would be liable for significant damages and penalties. The cost of misclassifying an employee will be way more than any reimbursable expense you may have to pay.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached atmary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.