May 25, 2023

California Expense Reimbursement: Best Practices

California Labor Code section 2802 states that employers must indemnify their employees for all necessary expenditures or losses incurred as a direct consequence of their job duties.  It’s crucial for employers to understand the guidelines and best practices surrounding this process. 

It is recommended that employers establish a clear policy regarding expense report submissions. Employers typically require submitting expenses on a monthly basis. This regular schedule ensures timely processing and helps employers manage their finances effectively. 

Even if an expense claim is submitted late according to the company’s policy, it is still the employer’s obligation to pay it, up to the statute of limitations which is up to four years. Even if the employee fails to submit an expense reimbursement claim, the employer must reimburse if they know about the business expense. To discourage late submissions, employers can enforce discipline measures for employees who fail to adhere to the established time frames. Consistency is key, and guidelines for expense submission should be applied uniformly to all employees, including those who frequently travel. 

Employees are entitled to reimbursement only for reasonable business expenses. This means that employers can set limits on certain expenses, such as hotel and food costs, to ensure they fall within acceptable ranges. Additionally, employers can require employees to choose cost-effective options, such as coach class airfare.  

The law does not specify when employers must reimburse their employees. However, reimbursements must be processed in a timely manner. While expense reimbursements do not need to be paid out simultaneously with the final paycheck when an employee leaves their job, employers should not use this as an excuse to postpone reimbursement. Payments should be processed as part of the usual expense payment procedure. 

To ensure a smooth expense reimbursement process, employers should establish and adhere to firm guidelines. Employers should create specific policies regarding expense submission, outlining time frames, expense limits, and guidelines for employees who travel frequently. Employees, on the other hand, may be expected to familiarize themselves with these policies and follow them accordingly. 

By maintaining open communication, providing clear guidelines, and adhering to the established policies, both employers and employees can navigate the expense reimbursement process effectively. Remember, the primary goal is to ensure that employees are reimbursed for necessary business expenses while maintaining a fair and reasonable approach for both parties involved.