If your business operates in multiple states in New England, it helps to know the different laws that apply to business reimbursements. You want to choose the vehicle reimbursement method that will comply will every state in the region.
Many companies that operate in New England have employees who are based in multiple states or cover territories that include more than one state. With six states in one small geographic area, it makes sense. But different states have different requirements when it comes to reimbursements for business travel using a personal vehicle.
Not every state in New England has any legal requirements around vehicle reimbursements. But in every state there is at least the requirement that business expenses incurred by an employee cannot reduce their pay to below that state's minimum wage. Most businesses avoid this problem, paying a car allowance, mileage rate, or other reimbursement. This is not just fair to employees to cover business costs, but also an important way to stay competitive in a relatively expensive part of the country.
Because of the variety of different costs and legal requirements employees face throughout New England, we recommend that businesses reimburse vehicle costs using the fixed and variable rate method, or FAVR. This is the most flexible, accurate, and equitable approach, as we will explain at the end. But first, a look at each state's requirements.
Massachusetts has the clearest, strictest legal requirements for businesses when it comes to reimbursements. Massachusetts regulation 454 CMR 27.04(4d) requires employers to reimburse employees for vehicle travel expenses on the job:
"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."
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. In the 2020 case Furtado v. Republic Parking System, a court determined that travel reimbursements are covered by that law, since a failure to reimburse travel expenses directly reduces wages.
Given the legal requirements in Massachusetts, it is crucial that any business operating in that state should ensure that its employees are fully reimbursed for vehicle expenses using either the federal rate of 67 cents per mile or the even more accurate fixed and variable rate system (FAVR).
New Hampshire does not have a direct, clear requirement that all employers reimburse the business vehicle expenses of their employees. However, NH Revised Statute, Section 275:57 does indirectly address the issue:
"An employee who incurs expenses in connection with his or her employment and at the request of the employer, except those expenses normally borne by the employee as a precondition of employment, which are not paid for by wages, cash advance, or other means from the employer, shall be reimbursed for the payment of the expenses within 30 days of the presentation by the employee of proof of payment."
There are qualifiers in this statute that could raise questions about whether all business vehicle expenses are covered. However, it is quite conceivable that an employee could sue an employer that does not pay a car allowance, mileage reimbursement, or FAVR reimbursement. Providing proof of these expenses would require a lot of time and effort, but it could be done. Violations are punishable at $1,000 per offense. Once again, a FAVR program is the best way to ensure proper reimbursement.
The state of Connecticut does not have a requirement for all businesses to reimburse the vehicle travel expenses of their employees. However, the state legal code does require this for workers in the restaurant and hotel restaurant industries. If they must travel between establishment during work hours, they must be compensated not only for their time but also "shall be reimbursed for the cost of transportation" (Conn. Agencies Regs. ยง 31-62-E10).
For the sake of fairness and staying competitive, employers in Connecticut will want to follow a similar policy for their employees no matter what industry they are in. State employees in Connecticut are reimbursed at the federal rate of $.67/mile set by the IRS. Given the state's relatively high cost of living, it makes sense for private companies also to pay a robust rate. However, because the IRS rate can create inequalities between employees or contribute to overpayments, it is recommended to explore whether a FAVR plan would be better for your organization.
Rhode Island, Vermont, and Maine do not require employers to reimburse employees for vehicle expenses incurred on the job. However, with minimum wages increasing, it is important to make sure that no employee's business vehicle expenses in effect reduce wages to below the current minimum wage.
In Rhode Island, the minimum wage in 2024 is $14.00/hour. This wage will increase to $15.00/hour as of January 1, 2025. In Maine, the minimum wage, as of January 1, 2024, is $14.15/hour, and $15.00/hour in Portland. Due to a 2016 law that requires annual adjustment of the minimum wage, it is likely that the minimum wage will continue to rise with inflation. Vermont also has a law requiring annual adjustment of its minimum wage. The 2024 minimum wage for Vermont is $13.67/hour.
Since many New England-based organizations may have employees who work in the New York area, it helps to know what to expect from New York's employee reimbursement laws. New York does not have a law requiring any particular reimbursement of business vehicle expenses.
However, like most of the neighboring states, the state government pays its employees the federal mileage rate of $.67/mile when they use a personal vehicle for work. So for private organizations, it is a good starting place to consider matching the public reimbursement rate. This is especially the case given how expensive it is to live and work in New York, with its costs of gas, insurance, and vehicle maintenance exceeding the national averages with which the IRS calculates its rate.
While not all states in New England have laws that specify employee reimbursement for a personal vehicle, this is a part of the country where many organizations operate robust vehicle reimbursement policies. Many of the states in New England pay the federal rate of $.67/mile to state employees when they operate a personal vehicle for work. This rate may be the standard in many employees' and potential employees' minds.
But is the federal mileage rate of $.67/mile the best approach to fair reimbursement of employees for the use of a personal vehicle? As we have explained in other posts, the IRS mileage rate works best for a certain type of organization. In this type of organization, employees incur expenses at around the average rate for American drivers and accrue business mileage similar to the average annual mileage of 14,000 miles.
The federal rate calculated by the IRS uses average costs and average mileage amounts. If your employees drive a lot less, the rate will under-reimburse them. If they drive a lot more, the rate will over-reimburse them. If they work in a particularly expensive area, the rate may under-reimburse them, unless they drive a lot.
This problem, along with the variety of legal requirements in New England (including the strict laws in Massachusetts), is a big reason why paying employees a FAVR vehicle reimbursement is the best way to go. Reimbursement of New England employees with a FAVR program will guarantee compliance with every state's requirements. It will also guarantee a competitive rate in each state while protecting against the cost overruns and inequalities that can be produced by the federal or IRS mileage rate.
The best way to start exploring whether a FAVR program is best for your business is to get your free benchmarking report. This report will compare your organization to similarly sized organizations and organizations in your industry and allow you to make an informed decision about whether a FAVR program would be best for your New England employees.