In the state of Massachusetts, most employees who operate a vehicle for work purposes are entitled to reimbursement of travel expenses outside the normal commute to their work site. Here's what your business needs to know about properly reimbursing your Massachusetts employees.
What does Massachusetts state law require for vehicle reimbursement?
Massachusetts regulation 454 CMR 27.04(4d) entitles employees to reimbursement for vehicle travel expenses on the job. Here is what that specific regulation states:
"An employee required or directed to travel from one place to another after the beginning of or before the close of the work day shall be compensated for all travel time and shall be reimbursed for all transportation expenses."
The statute also states that an employee who normally reports to one work site but is directed to report to a different location is entitled to reimbursement "for all travel time in excess of his or her ordinary travel time between home and work."
These reimbursement requirements apply whether the employee is using public transportation or a personal vehicle to travel to required locations.
What are the consequences of not reimbursing Massachusetts employees for vehicle travel?
Under the Massachusetts Wage Act, failure to pay all owed wages is considered wage theft and punishable by repayment of owed wages multiplied by three. As a court found in the 2020 case Furtado v. Republic Parking System, travel reimbursements are covered by that law, since a failure to reimburse travel expenses directly reduces wages.
If you have employees in Massachusetts who travel using a personal vehicle during the workday, then it is important to know how to properly reimburse their travel time beyond the normal commute. It can be a challenge to quantify the business use of a personal vehicle, but with the right tools you can keep your business compliant with Massachusetts labor laws and avoid costly complications from violations.
The Best Way to Reimburse Massachusetts Employees for Using their Personal Vehicle at Work
The most time-consuming way to reimburse vehicle travel expenses is to have employees submit expense receipts. This method might work for employees who rarely drive during the workday. But for employees who travel weekly or daily, a simpler method is necessary.
The two most suitable options are paying a mileage reimbursement and paying a fixed and variable rate reimbursement. A comparison of the two options will help reveal which option is the best method for your organization to use in reimbursing Massachusetts employees for the use of their personal vehicle at work.
1. Mileage reimbursement in Massachusetts
The simplest way to reimburse Massachusetts employees for the business use of a personal vehicle is to pay a mileage reimbursement using the IRS business mileage rate. That rate is 67 cents per mile for 2024.
Mileage tracking and reporting
Because these payments are reimbursements for business expenses, they are non-taxable. The key is to use an accurate, timely mileage reporting strategy. Choose a mobile app that accurately tracks business mileage and helps automate the reimbursement process. Remember to choose an app that protects employee privacy.
Downsides of the IRS business mileage rate
The downside of paying a standard reimbursement rate like the IRS business rate is that it may not accurately reimburse all of your Massachusetts employees. That rate of 67 cents per mile was derived based on average annual mileage and average annual costs nationwide. But it may not be appropriate for all Massachusetts employees.
Employees who do mostly urban and suburban driving in expensive locations may not drive enough miles for that rate to cover all their expenses when you factor in the business portion of expenses like auto insurance and depreciation on top of more obvious expenses like fuel and maintenance.
Driving for dollars with the IRS mileage rate
High-mileage drivers can also be a mismatch for the IRS mileage rate. Because that rate was derived based on average mileage, people who drive well above the average can end up being over-reimbursed. The more they drive, the more they get paid, even though the law treats it as a reimbursement. This can lead to cost control issues for the organization.
2. FAVR reimbursement in Massachusetts
The alternative non-taxable reimbursement for personal vehicles is called fixed and variable rate, or FAVR. This method of reimbursement is more complicated to administer but has none of the downsides of paying a standardized mileage reimbursement. For that reason, we consider FAVR the best option for reimbursing Massachusetts employees.
Data-driven, localized rates
The primary strength of FAVR reimbursement is the way reimbursement rates are derived. Instead of using a national rate that is based on average costs that may not fit employees based in Massachusetts, FAVR derives rates using vehicle travel expense data for each employee's zip code.
By basing rates on localized expense data, you get more accurate reimbursements that will ensure compliance with Massachusetts wage law. But what about high-mileage employees and the high costs of possibly over-reimbursing them?
Fixed costs and variable costs
A FAVR reimbursement gets its name from combining two different rates to deliver payments to employees: a fixed rate and a variable rate. It is this combination that ensures that both low-mileage and high-mileage employees are properly reimbursed.
Fixed payments go to pay the business portion of fixed expenses like auto insurance, depreciation, taxes, registration, and license. These expenses only change on a bi-annual or annual basis, and can be paid using the same fixed amount month after month, making them easy to budget for.
Variable payments are based on a mileage reimbursement rate derived from the localized cost data. These payments go to address mileage-based costs like fuel, oil, tires, and maintenance. Because the overall reimbursement is only partly based on a mileage rate, it protects against cost-control issues.
FAVR program administration
If you choose to reimburse Massachusetts employees using a FAVR plan, you will need to partner with a third-party vendor to calculate the rates and administer the program. In return, you get peace of mind, and your employees know that all of their business travel time will be properly reimbursed.
Learn more about what a FAVR reimbursement program tailored to your organization could like like by scheduling a call or using our free FAVR plan analysis tool below.
