How to Pay Hourly Employees for Travel

Compensating hourly employees for travel time and related expenses is a complex area. Employers must navigate federal wage laws, particularly the Fair Labor Standards Act (FLSA), to ensure compliance and fair treatment of their workforce. Misunderstandings can lead to significant financial penalties and legal issues.

Understanding Compensable Travel Time

The Fair Labor Standards Act (FLSA) provides guidelines for determining when an hourly employee’s travel time must be compensated as hours worked. Generally, time spent traveling for the employer’s benefit is considered compensable. However, specific scenarios dictate whether compensation is required.

Ordinary home-to-work commuting is generally not compensable under the FLSA, even if an employee works at different job sites daily as part of their normal commute. However, if an employee must report to a meeting place to pick up materials, equipment, or instructions before traveling to a worksite, the time from that meeting place to the worksite is compensable.

Travel during an employee’s normal work hours is compensable. This includes travel from one job site to another during the workday, which is part of the employee’s principal activity. For instance, travel between customer locations throughout the day must be paid.

Special one-day assignments in another city also have specific rules. When an employee, typically working at a fixed location, is assigned to another city for a single day and returns home, the travel time to and from that city is generally compensable. Employers may deduct the time the employee would normally spend commuting to their regular worksite from this compensable travel time.

Overnight travel involves different considerations. When travel keeps an employee away from home overnight, time spent traveling that cuts across the employee’s normal workday is compensable, regardless of whether it occurs on a regular workday or a non-working day. For example, if an employee’s normal work hours are 9 a.m. to 5 p.m., travel during those hours on a Saturday for an overnight trip is compensable. Time spent traveling as a passenger outside of normal working hours is generally not compensable. However, if an employee must perform work while traveling, such as responding to emails or preparing reports, that time is compensable regardless of whether it falls within normal working hours.

If employees must transport significant tools or equipment to a job site, compensability may be impacted. While ordinary commuting with tools is typically not compensable, if the employer requires the employee to report to a central location to pick up or carry tools before traveling to the job site, the travel from that meeting place to the worksite is compensable.

For emergency call-outs, if an employee is called back to perform an emergency job at a customer’s location after their regular workday, the travel time to and from that emergency worksite is compensable. However, if the emergency call-out is to the employee’s regular place of business, the compensability of travel time may vary, and federal guidance does not take a definitive position on this scenario.

Calculating Hourly Pay for Travel

Once travel time is determined to be compensable, it must be included when calculating an employee’s regular rate of pay, especially for overtime purposes. The regular rate of pay includes all remuneration for employment paid to an employee, with certain exceptions. If an hourly employee’s compensable travel time causes their total hours worked in a workweek to exceed 40, those additional hours must be paid at an overtime rate of at least one and one-half times their regular rate.

For instance, if an employee works 35 regular hours and has 10 hours of compensable travel time, their total hours worked for the week are 45, triggering 5 hours of overtime. The regular rate calculation must incorporate any non-hourly forms of compensation related to the travel, such as bonuses or commissions, to accurately determine the overtime rate.

During periods of travel, short rest breaks, typically 5 to 20 minutes, are generally considered compensable working time. These breaks are usually integrated into the work period and cannot be deducted from an employee’s hours. Conversely, bona fide meal periods, where the employee is completely relieved from duty for eating a regular meal, are generally not considered compensable work time.

Handling Travel-Related Expenses

Separate from compensating for travel time, employers must also address the reimbursement of expenses incurred by employees during business travel. These expenses cover the actual costs associated with the trip, ensuring employees are not financially burdened. Common reimbursable expenses include mileage for personal vehicle use, lodging, meals, and incidental costs such as parking fees or tolls.

Employers utilize several methods for expense reimbursement. One common approach is actual expense reimbursement, where employees submit receipts for all costs incurred and are reimbursed for the exact amounts. Another method involves per diem allowances, which provide a set amount for daily expenses, such as meals and incidentals, without requiring detailed receipts, often based on established IRS per diem rates. For mileage, the IRS annually publishes a standard mileage rate that employers can use to reimburse employees for business use of their personal vehicles.

Establishing an accountable plan is important for both the employer and employee for tax purposes. An accountable plan requires employees to substantiate expenses with documentation, such as receipts, and to return any excess advances within a reasonable period. This ensures reimbursements are not treated as taxable income to the employee. Clear, written policies outlining reimbursable expenses, required documentation, and reimbursement procedures are important for consistency, fairness, and compliance with tax regulations.

Meeting Legal Requirements for Travel Pay

Employers have clear legal obligations regarding travel pay, primarily under the Fair Labor Standards Act (FLSA). Adhering to FLSA requirements ensures accurate compensation of travel time and compliance with federal wage and hour laws. This includes correctly identifying compensable travel time and ensuring it is factored into the regular rate of pay for overtime calculations.

Beyond federal mandates, many states have their own wage and hour laws. These state laws can be more stringent than the FLSA, potentially requiring compensation for travel time or expense reimbursement where federal law does not. Employers must comply with both federal and applicable state regulations to avoid violations.

Accurate and detailed recordkeeping is important for all hours worked, including travel time, and for all reimbursed expenses. Employers should maintain records showing the start and end times of all compensable travel, the travel’s purpose, and detailed documentation for all expense reimbursements. These records serve as proof of compliance during audits or disputes.

Developing a comprehensive, written travel policy is an important administrative practice. Such a policy should clearly define compensable travel time, outline procedures for reporting travel hours, detail reimbursable expenses, specify required documentation, and establish approval processes. A well-defined policy provides clarity for employees and protects the employer by setting clear expectations and ensuring consistent application of compensation and reimbursement rules.