10 Tips on California Law Expense Reimbursement Time Limit

By: Brad Nakase, Attorney

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Kathy works as an administrative assistant at an office in Venice Beach. She is in charge of maintain files, scheduling client appointments, and organizing and ordering office supplies. One day, the office is having a party to celebrate a successful sales quarter. The manager of the office, Howard, asks Kathy to use her DoorDash account to order a few dozen donuts and coffee from Dunkin. Kathy ends up spending $150 on the food using her personal credit card. When Kathy receives her paycheck the next month, she notes that she has not been reimbursed for the coffee and donuts she bought for the office. When she asks her employer for reimbursement, Howard gets irritated, saying that she shouldn’t stress over such a small amount. He tells her that “small” expenses like food and drink are simply part of Kathy’s job duties, and that he doesn’t owe her any money. When Kathy threatens to sue, Howard says that the company has a two-day limit for requesting reimbursement, and Kathy never asked for it. Kathy reviews the employment handbook and finds that the office does not, in fact, have any reimbursement time limits. She finds a lawyer and sues Howard for failing to reimburse her.

Under California labor law, employers are required to reimburse employees for business expenses made during the course of their employment, so long as they are necessary and reasonable in nature. This means that an employer must pay an employee back for any financial losses the employee accepted as part of doing his or her job.

Example: Mikel is the manager of an office in Lomita. Whenever the office is running short on paper and their delivery isn’t due for a while, he asks his assistant, Kylie, to run off to Staples and buy some boxes. Mikel makes sure to reimburse Kylie, paying her back for the paper she buys for the office.

1. Employee Expense Reimbursement Laws

Under California law, specifically Labor Code Section 2802, an employee must receive expense reimbursements for work-related expenses. Employers are legally required to pay employees back for “necessary” and “reasonable” costs accepted “in direct consequence of the discharge of the duties.”

The purpose of the law is to ensure that California employers do not force their employees to cover operating expenses.

Example: Patty runs a small tutoring company. Patty likes looking for ways to save money because running a business is expensive. She decides to have her employees pay for necessary supplies like paper, pencils, and even textbooks. She thinks that because they work for the company, they also have a responsibility to make sure it runs properly. Unfortunately for Patty, this practice is illegal under California Labor Code, Section 2802. If her employees buy materials necessary for the operation of her business, she is required to reimburse them for those expenses.

In California, an employer is allowed to refuse to reimburse an employee if he or she believes the work-related expenses were not “necessary” or “reasonable.” What is the definition of a necessary and reasonable expense? It depends on a few factors, including:

  • The employee’s job description
  • Whether the work could have been done without the expense
  • The employee’s performance expectations

Example: Eugenia works at an office as a secretary. She loves to create custom birthday cards for the employees at the office on their birthdays and have everyone sign them. The office supply room does not stock colored construction paper or markers, so Eugenia buys the materials using her own money. When Eugenia asks her boss for reimbursement, he denies it. This is because making birthday cards does not fall under Eugenia’s job description, and she is not expected to make them. It is a kindness on her part, and her boss does not need to repay her.

In California, there are no laws directly addressing reimbursement receipts. Generally, employers in California will reimburse employees when employees request reimbursement for expenses. This usually applies when an employer did not plan for the expense or was unaware of it. However, sometimes an employer expects an employee to incur expenses on a regular basis. In this case, the employer could offer regular compensation to the employee, or otherwise increase the employee’s salary to account for the expenses.

Example: Azan works for a construction company. Because Azan has a Costco membership, Azan’s boss often asks him to buy snacks and drinks in bulk to restock the company fridge and pantry. The other workers love the Costco products, and Azan is happy to contribute. However, Azan is not made of money. He arranges with his boss to have a regular compensation schedule. This means that Azan’s boss regularly reimburses Azan for his Costco purchases.

Employers will usually require that employees provide receipts in order to receive reimbursement for work-related expenses. The receipts are needed as proof that the purchase was valid and made by the employee on the company’s behalf.

Under California law, there are no specific guidelines instructing employers on how to reimburse employees for necessary and reasonable expenses. That said, California law does mandate that employers clarify what portion of pay is for work provided and what portion is for expense reimbursement. This practice can reduce inaccurate wage statement claims.

For example, an employee who receives increased compensation to make up for work-related expenses can file a complaint with the state if the employer did not specify what amount was wages and what amount was reimbursement. These two amounts must be clearly identified on an employee’s paystub if repaid in this manner.

Example: Lizzie works as a teacher for a private kindergarten. As part of her job, she buys picture books for the kids to read during Story Time. Lizzie’s employer reimburses her for this expense by appropriately increasing her salary. However, Lizzie’s employer fails to label which amount is wages and which amount is reimbursement. Lizzie hires a lawyer to ensure that her employer makes the differentiation on her paystub.

When it comes to reimbursing a commission-based employee, an employer can make reimbursement for work-expenses dependent on performance. If the employee ends up not making enough commission, the employer may not reimburse the employee for expenses and losses.

5. Mileage Reimbursement for Employees

Under California law, employers must reimburse workers for all travel expenses related to their job. The only exception to this rule is an employee’s commute to and from work. However, when the travel is work-related, an employee may be entitled to reimbursement for the following expenses:

  • Mileage expenses
  • Parking fees
  • Biking expenses
  • Car rental
  • Public transportation fares
  • Airfare
  • Taxi and rideshare costs
  • Tolls

Example: For his job, Edwin must travel to a trade show every month. To attend the show, he drives three hundred miles in total. At the convention center, parking is twenty dollars a day, and Edwin must park there for three days. Under California law, his employer must reimburse him for the expenses associated with driving to the trade show. This means he should be paid for mileage expenses and parking fees.

It is possible for an employee to be reimbursed for having to purchase a uniform, but much depends on the nature of the employer’s mandate. There is a difference between required clothing and an employer-enforced uniform. An employer may instruct his employees to wear certain types of clothing, such as jeans and a black shirt. This counts as required clothing. If an employer, however, requires his employees to wear a shirt emblazoned with the company logo, then this is a uniform. If an employee must wear a uniform, he or she must be reimbursed for the cost of the uniform as well as any maintenance costs (laundry, etc.).

Example: Joanne works at a themed children’s restaurant where she must dress up as a princess when serving parties of guests. Therefore, Joanne’s mandated uniform is a long sparkly dress and a tiara. Not only must Joanne’s boss reimburse her for the cost of the uniform, but he must also cover any costs of laundering the uniform.

7. Business Travel Reimbursement

When an employee must travel for work, any expenses incurred as part of that trip should be reimbursed by his or her employer. These expenses may include hotels, airfare, rental cars, meals, parking fees, and currency conversion fees.

Example: Richard works for a furniture company, and he often travels to Sweden for business. While traveling, he ends up spending his own money on booking a flight to Stockholm, getting a hotel in the city, renting a bike, and paying for meals. When he gets back to the States, Richard’s employer reimburses him for all these aspects of his trip.

8. Penalties for Failing to Reimburse Employees

An employer who does not properly reimburse his employees, or who fails to reimburse them, faces penalties:

  • Court costs and fees from a lawsuit
  • Having to pay the employee’s reimbursable expenses
  • Having to pay interest (usually 10%)
  • Lawyers’ fees

Generally, employees can request reimbursement for work-related expenses within three years of purchase. That said, some employers have specific policies that require employees to make reimbursement requests within a set period time (i.e., within a few days).

10. Is Reimbursement Considered Income?

As long as an employer fills out an employee’s pay stub correctly, defining what amount is wages and what is reimbursement, then expense reimbursement does not count as income.

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