Are Employers Required to Pay Mileage?

Many employees use their personal vehicles for work-related errands, client visits, or travel between job sites. The obligation to reimburse employees for using their personal cars depends on a combination of federal and state laws. Understanding these rules is important for both employees who incur these costs and employers who manage them.

Federal Mileage Reimbursement Rules

There is no federal law that mandates all employers must reimburse employees for work-related driving. The primary federal regulation that comes into play is the Fair Labor Standards Act (FLSA), which governs minimum wage and overtime pay. The FLSA’s involvement is indirect, ensuring an employee’s earnings do not fall below the federally mandated minimum wage after accounting for business expenses.

Reimbursement under the FLSA is required only when an employee’s work-related driving costs, if left unreimbursed, would reduce their hourly pay rate below the federal minimum wage. For example, if an employee earns the federal minimum wage, the cost of gas and wear and tear on their vehicle could drop their net earnings below the minimum wage threshold, creating a violation.

This means that for employees earning significantly more than the minimum wage, the FLSA provides no federal guarantee of mileage reimbursement. Their higher wages can absorb the vehicle expenses without dipping below the legal pay floor.

State-Specific Reimbursement Laws

While federal law sets a baseline, several states have enacted their own, more stringent mileage reimbursement requirements. In these jurisdictions, the obligation to reimburse is not tied to the employee’s wage rate. States such as California, Illinois, and Massachusetts have laws that broadly require employers to pay for all necessary business expenses an employee incurs, which includes mileage for personal vehicle use.

The principle behind these laws is that an employer should bear the costs of doing business, and employees should not have to subsidize company operations with their personal funds. The specific requirements can vary, so it is advisable for individuals to consult their state’s department of labor for precise rules. Employers operating in multiple locations must navigate these regulations, complying with stricter state mandates where applicable.

Calculating the Reimbursement Amount

When an employer is required to reimburse for mileage, or chooses to do so as a policy, there are two primary methods for calculating the payment. The most common approach is using the Internal Revenue Service (IRS) standard mileage rate. This rate, which for 2025 is 70 cents per mile, is set annually and is designed to cover the costs of operating a vehicle, including gasoline, insurance, and depreciation.

An alternative is the actual expense method, which involves tracking all the real costs associated with using a vehicle for business. This requires meticulous recordkeeping of expenditures like fuel, repairs, and insurance, as well as calculating depreciation. This method is more burdensome for both the employee and the employer to administer.

Some companies opt to provide a flat car allowance, a fixed amount paid to employees each pay period to cover vehicle expenses. This method offers simplicity but can be problematic in states with strict reimbursement laws. If the allowance is not sufficient to cover the actual costs an employee incurs, the employer may be required to pay the difference.

Recordkeeping for Reimbursement

Proper documentation is necessary for receiving mileage reimbursement. To substantiate a claim and ensure the reimbursement is non-taxable under an IRS accountable plan, employees must maintain a detailed and contemporaneous mileage log. This means recording trips as they occur, not attempting to recreate them weeks or months later.

A compliant mileage log must contain specific information for each business-related trip, including:

• The date of the travel
• Starting and ending locations
• The total number of miles driven
• The business purpose of the trip

For the business purpose, noting the name of the client and the reason for the visit provides stronger documentation than a general statement like “client meeting.”