California Gas Prices, Labor Laws, and Your Vehicle Reimbursement

Written by mBurse Team Member Oct 7, 2019 7:00:00 AM

It's common knowledge that California has the highest gas prices in America. But as prices reach a five-year high, employers may find themselves on a collision course with California's stringent labor laws.

California gas prices and California labor laws in 2019 – a combustible combination

As of October 5, 2019, California's average gas price has climbed to $4.173 per gallon. The average cost for the rest of America's drivers is $2.658 per gallon. Add California's strict labor laws, and you've got a fuel-oxygen mixture that's just waiting for a spark to ignite. If your employees operate there, you could be engulfed by the state's expense indemnification code.

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Here are the relevant details:

  1. California Labor Code, Section 2802(a)

    This labor law requires employers to fully reimburse all California-based employees for all reasonable expenses incurred while doing their job.
  2. CA Labor Code 2802(a) and employee vehicles

    For employers with workers who carry out job responsibilities using a personal vehicle, this labor law requires full reimbursement of all costs related to the business use of that vehicle – including both ownership costs such as auto insurance and operation costs such as fuel.
  3. CA Labor Code 2802(a) and CA gas prices

    As gas prices push their way toward record highs, any employer who fails to deliver a simultaneous increase in their employees' vehicle reimbursements will likely be in violation of CA Labor Code 2802(a).
  4. CA Labor Code 2802(a) and the IRS mileage rate

    Because the IRS mileage rate does not adjust responsively to regional gas price increases, companies that issue reimbursements based on this rate will almost certainly find themselves in violation of California's labor laws in 2019.

Why California's 2019 gas prices and labor laws have reached a breaking point

While there has been tension between California's vehicle costs and labor laws for several years now, that tension is reaching a breaking point due to recent developments:

  • A 5.6-cent increase in the California gas tax went into effect July 1, 2019
  • Starting July 1, 2020, the gas tax will increase annually with inflation
  • California instituted a carbon tax to help curb emissions in 2017
  • A recent oil refinery fire in the U.S. and an oil field attack in Saudi Arabia have decreased gas supplies

Together, these forces have pushed up gas prices, and with the annual gas tax increase starting in 2020, the state's gas prices could rise indefinitely, even if the rest of the country's prices stay flat. 

Employers seeking to comply with California's labor laws in 2019 and beyond will have to adjust their car allowance or vehicle reimbursement right away.

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It is true that the IRS mileage rate will adjust in January 2020 based on the average costs of vehicle ownership and operation across the entire United States. However, because California's costs greatly exceed the average, reimbursing with the IRS mileage rate increasingly will leave employers in violation of CA Labor Code 2802(a). (For more info, read "How the IRS Mileage Rate Violates CA Labor Code 2802(a)")

Employers paying a standard, taxable car allowance could find themselves falling even further short of the standards set by the California labor laws governing vehicle reimbursements. Because federal and state taxes already eat up so much of a taxable car allowance, it is difficult to sufficiently reimburse employees without paying a very high monthly amount. (See "Why Your $500 Car Allowance Is Violating CA Labor Code 2802(a)"

Repercussions of California's 2019 labor law / gas price conflict

Companies with drivers operating in the Golden State will incur costly consequences if they do not respond to the recent developments. In short, productivity losses and increased overall costs will result.

It's simple logic – when employees face increased vehicle costs without increased vehicle reimbursements, they will take actions to recoup their losses. These actions can take a number of forms, all of which will prove costly to the company.

  1. Excessive mileage

    If you're paying a mileage rate, such as the IRS rate, your employees know that the more mileage they report, the higher their reimbursement. As gas prices rise, watch their reported mileage totals rise.
  2. Attrition rates 

    If an employee's car allowance or reimbursement does not protect their income, they will look for an employer with a vehicle reimbursement plan that does.
  3. Labor code lawsuits

    California has the strictest expense indemnification codes in the country. Drivers have successfully sued employers for under-reimbursement under CA Labor Code, Section 2802(a) many times in the past. 
  4. Decreased productivity

    Employees who receive a fixed car allowance may decrease their driving in order to save money on gas. This could deteriorate productivity across the company as drivers wait for prices to drop.

Navigating California's labor laws in 2019 and beyond

With California's gas tax set to continue rising in 2020 and beyond, it is crucial now that employers re-calibrate their car allowance or reimbursement to avoid violating the state's strict expense indemnification codes.

Gas prices are not in your control, but how you reimburse employees is. Make sure your employees are focused on their jobs, not gas prices. Take steps to improve your car allowance or mileage reimbursement today. A good place to start is our free self-guided tool to assess, compare, and strengthen your car program.

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