Illinois in 2018 joined other states that legally require employers to reimburse employees for the use of a personal vehicle at work. Here is the best way to reimburse these employees and comply with the Illinois Wage Payment and Collection Act.
Which personal vehicle expenses must be reimbursed in Illinois?
Illinois mileage reimbursement law
The Illinois Wage Payment and Collection Act states,
"An employer shall reimburse an employee for all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer." (Source: Illinois Wage Payment and Collection Act)
These necessary expenditures or losses include the use of a personal vehicle on behalf of an employer. But which expenses count?
What the Illinois expense reimbursement law covers
Reasonable vehicle expenses include not only obvious ones like fuel, oil changes, and tires but also auto insurance, depreciation, and taxes, license, and registration. Any organization operating within Illinois needs to ensure that they are complying with this employee indemnification law in order to avoid costly penalties.
Mileage reimbursement in Illinois
What is the Illinois mileage reimbursement rate?
Many businesses in Illinois use mileage reimbursement to comply with the labor code. The state does not mandate a specific mileage rate. The federal mileage rate of $.67 per mile works as a standard mileage rate for Illinois. But this is not the only way to comply with the law.
Travel reimbursement rates in Illinois
Aside from mileage reimbursement at the federal IRS rate, other options exist to comply with the IWPCA.
- Mileage reimbursement at a different rate
- Fixed and variable rate reimbursement (FAVR)
- Car allowance or mileage allowance
- Actual expense method
What is the best way to reimburse Illinois employees for mileage?
The best way to reimburse your Illinois employees for the use of a personal vehicle will meet the following criteria:
- Quantifiable and defensible methodology
- Automated expense reporting with timely payments
- Cost-effective for the organization
Of the available methods of reimbursement – mileage reimbursement, car allowance, actual expenses, fixed and variable rate reimbursement – only one meets all these criteria.
Quantifiable reimbursement
A defensible reimbursement under the Illinois WPCA should have a methodology for deriving payments. These payments should be quantifiable and based on vehicle expense data. The most common forms of payments to employees for the business use of a vehicle do not meet this criteria.
- Mileage reimbursements: often use the IRS mileage rate, which is based on average annual expenses nationwide.
- Car allowances: typically not based on localized expense data and compromised by taxation of payments.
- Actual expenses: quantifiable but time consuming to manage because it requires tracking and expensing receipts.
- Fixed and variable rate: quantifiable because rates derive from localized vehicle expense data and individualized for drivers.
Automated expense reporting
Automated expense reporting is important in order to keep employees focused on their jobs, rather than on completing administrative tasks. Any expensing system that relies on manual reporting of individualized expenses will be time-consuming and frustrating for drivers and managers.
Many mileage reimbursement programs involve some amount of manual reporting of trips and mileage. Not only can this lead to overestimates at the expense of the organization, but it can lead to frustration among everyone involved in the mileage reporting and approval process.
Using a compliant mileage log
To properly track mileage for reimbursements in Illinois, you need to log the following information:
- Date and time of each trip
- Trip destination and purpose
- Total mileage of the trip
Best practice is to integrate a GPS-based mileage app into your organization's expensing system. A mileage tracking app will automatically calculate mileage and reimbursements using mobile devices. This works whether you use a standard mileage rate or a FAVR reimbursement rate.
Cost-effective Illinois vehicle reimbursements
Of the various options available, a FAVR plan is the most cost-effective. It is accurate, eliminating the risk of violations of the Illinois Wage Payment and Collection Act. When paired with an appropriate mileage tracking app, it requires little administrative time from employees and managers. As an IRS-approved accounting method, FAVR is tax-free as well.
Setting up a FAVR program is complicated because of the vehicle data needed to derive the rates. But the savings that come from its advantages more than pay for vendor fees and can bring a significant return on investment. A properly administrated FAVR vehicle program brings peace of mind because it will prevent violations of the Illinois labor code.
What are the consequences of violating Illinois labor law?
If an employer is found to have violated the Illinois WPCA, then the employer will be responsible to repay more than just the full amount of underpayment to the employee. The employer must also pay additional damages equal to 5% of the underpayment for each month during which the full reimbursement has not yet been paid.
The employer must also pay an additional fee to the Illinois Department of Labor ranging from $250 to $1,000, depending on the size of the underpayment amount. It is also important to note that any officers of the corporation who knowingly allowed the underpayment to occur may also be found personally liable for the money owed to the employee.
How to protect your organization from Illinois labor violations
To protect your organization from labor code violations in Illinois, choose a vehicle reimbursement method that is quantifiable, data-driven, automated, and cost-effective. We recommend fixed and variable rate reimbursement because it is the only plan that combines all of these qualities.
Learn more about FAVR vehicle plans by scheduling a call today or requested a free plan comparison analysis below.
