Businesses and employees operating in New York should know the laws that govern mileage reimbursements. The state of New York does not require mileage reimbursement, but competition may demand it.
New York does not explicitly require employers to reimburse employees using a personal vehicle. However, there are some relevant laws that can affect when and how employers compensate workers for vehicle costs.
The state of New York has robust minimum wage requirements. In New York City and in counties that surround the city, the minimum wage for 2024 is $16.00/hour. The wage is $15.00/hour in many other parts of the state.
These amounts are scheduled to rise in the coming years. After reaching $17.00/hour in 2026, the rate will begin increasing in relation to the Consumer Price Index. The CPI is an index that measures inflation.
Total compensation cannot dip below these amounts. Therefore, employers must ensure that work-related vehicle costs do not eat into compensation. A mileage reimbursement or car allowance can help avoid this form of wage theft.
Section 198-C governs reimbursement of employees. This law stipulates that employers must fulfill contractual obligations to reimburse employees.
This does not mean that all employers must offer mileage reimbursements. But the law does mean that an employer cannot agree to a reimbursement and then fail to deliver it.
New York does not have a standard mileage reimbursement rate for private companies. Instead, many businesses use the federal mileage reimbursement rate. For 2024, the IRS mileage rate is 67 cents per mile.
Employees of the state of New York receive the federal rate of 67 cents per mile when traveling for work. Private employers may choose a different rate or method to offset costs.
There are three main approaches to paying employee vehicle costs. One is taxable, and the other two are tax-free if properly executed.
A great option for New York employees is a FAVR reimbursement plan. FAVR plans are tax-free and designed to match localized costs. This approach works well for an organization seeking to pay competitive rates while staying on budget.
The less flexible IRS rate has a tendency to over-reimburse some workers and under-reimburse others. With FAVR, however, a driver in New York City will receive different rates than a driver in upstate New York. This approach avoids overpaying and underpaying but is more complex to administer.
Employers should first establish a clear reimbursement policy that outlines the process, rates, and any necessary documentation. Remember that NY Labor Law Section 198-C requires employers to fully execute their reimbursement policies.
It is best practice to require employees to provide a copy of their insurance declarations page. This proves that they have sufficient car insurance to cover an accident that occurs on the job. Requiring this step as part of the reimbursement policy protects the company from vicarious liability.
Whether you use the federal rate or a FAVR rate designed for reimbursement of mileage in New York, employees must keep detailed records. To keep the payments tax-free, you must comply with federal tax law. Here's what the IRS requires for a mileage log:
Many businesses use mobile apps instead of paper logs or spreadsheets. These mileage tracking apps keep accurate records, automate the process, and provide timely reports. They also provide insights into each driver's productivity.
A mileage reimbursement should cover a number of different costs. Some of these are fixed costs and some are variable costs.
Fixed costs remain predictable regardless of how much you drive each month:
Variable costs increase the more you drive:
Other reimbursable expenses for vehicle travel can include tolls and parking fees. The employee must demonstrate that these expenses had a business purpose.
New York state mileage reimbursement law leaves employers free to choose how to offset employee vehicle expenses. The most competitive employers will choose a mileage rate that benefits employees while remaining cost-effective.
A FAVR plan provides the best business reimbursement method. FAVR separates out fixed expenses from variable expenses while using localized cost data. This approach ensures accurate payments to a range of employees. The employer can control costs and provide transparent payments.
To learn more about how a FAVR plan could benefit your New York employees, contact mBurse today.