Illinois’ New Labor Law and Business Mileage Reimbursement
Illinois recently passed an amendment to the Illinois Wage Payment and Collection Act (IWPCA). This amendment requires employers to reimburse their workers for “necessary” costs “directly related to services performed for [their] employer[s].” While this new law does not go into effect until January 1st of 2019, employers both inside and outside of Illinois should begin preparing for these changes.
How does the IWPCA affect my business?
Regardless of whether you live in Illinois or not, this should serve as a wake-up call. The new law adopted by the Illinois State Government is strikingly similar to those enacted by seven other states: California, Iowa, Massachusetts, Montana, New Hampshire, North Dakota and South Dakota. Add the District of Colombia and you now have nine “U.S. jurisdictions” that require similar policies from employers. And that number is only growing.
What are the new employer requirements of the IWPCA labor law?
As previously stated, employers must reimburse their workers for “necessary” costs “directly related to services performed for [their] employer[s].” This has been seen as a response to the increase in Bring Your Own Device culture in workplaces. However, this stretches beyond personal laptops and smart phones used for business.
Many industries have long required mobile workers to use their personal vehicles for business purposes. When established fairly, their business vehicle programs accurately reimburse employees for the costs of driving for work, taking into account geographic variations in this expense. Now under the IWPCA, ensuring the accuracy of this calculation is no longer just about fairness for Illinois drivers. It’s also fundamental to compliance with state labor law.
Additionally, companies who relied on their mobile workers to write off the mileage as a deduction on their taxes can no longer do so. With the new Tax Cuts and Jobs Act, business mileage cannot be deducted.
What else should I know about the IWPCA labor law?
There are requirements that come with the IWPCA amendment:
1. Employees must receive permission to incur the expense from their employer
2. The payment must be expensed within 30 calendar days unless the employer’s policy allows for a longer period
3. If an employee does not have the receipt from the original purchase they are required to give a signed, written statement
Note that employers do not have to cover expenses incurred due to employee negligence, typical wear and tear or theft, or employee non-compliance with a written corporate reimbursement policy.
The law has yet to go into effect, but California’s similar law has been on the books for years. Case law in California provides good guidance, particularly because the language of that provision echoes the “necessary” and “reasonable” terminology of the Illinois law. For example, California case law addresses issues such as appropriate methods to calculate reimbursable expenses arising from work-related uses of personal vehicles and cell phones; whether and when trainings and certifications are reimbursable; and when tort liability is a loss incurred in the discharge of duties.
How does a company ensure their vehicle program doesn’t violate this labor law?
This is specific to the type of vehicle program the company is using. Let’s breakdown each of the top programs:
Companies provide their mobile workforce with owned or leased vehicles to drive for business purposes. How does the IWPCA impact this? Employers should consider all peripheral costs an employee could be incurring. For example, are you offering a fuel card? If not, are you reimbursing based on submitted mileage receipts? Your company may be at risk if not.
Companies provide their mobile workforce with a flat rate each month for the expense of driving their personal vehicles for business purposes. This program may be simple, but it may not result in satisfactory reimbursement for every mobile worker’s business driving needs. The flat rate is the same, regardless of region. This means a mobile worker driving more in an area with higher gas prices may be under reimbursed. Without tracking actual costs, companies paying flat allowances may inadvertently experience new liability under the IWPCA, as they may be unaware their allowance doesn’t fully reimburse cost.
Companies provide their mobile workforce with a reimbursement based on the miles they drive for business purposes in their personal vehicle. Most companies require mileage logs. However, these do not necessarily guarantee mobile workers are reimbursed appropriately. Companies normally pay a fixed cents-per-mile rate, a one-size-fits-all approach to mileage reimbursement. A fixed per-mile-rate may not cover all the expenses incurred with low mileage, but overcompensates for high mileage. Protecting your company from violating state labor laws means looking into these discrepancies.
Companies provide mobile workers with an individualized reimbursement rate that takes into account both the fixed costs (insurance premiums, taxes, depreciation and license and registration fees) and variable costs (gas, oil, tire wear and maintenance) of driving their personal vehicle for business purposes, calculated using geographic-specific data for each mobile worker. A FAVR reimbursement program therefore provides the most robust substantiation for employers looking to satisfy the new IWPCA requirements.
One vehicle program doesn’t always work for the entire company. In these cases, companies may have some combination of the above. As long as every mobile worker is reimbursed appropriately, your company’s vehicle program will be safe from this labor law violations.
We strongly encourage you ensure your company is not infringing labor laws with your current vehicle program or elsewhere in your reimbursement practices. For more information, check out the PYMNTS’ podcast with our Chief Legal Officer, Danielle Lackey. Interested in finding out how we can help? Contact us!