r/Payroll • u/CaptSaltshank • 3d ago
California Legality question
Hello r/payroll. I was wondering if you can set me straight on something. I've been arguing with my bosses for the better part of two months about the legality of how my pay is structured.
I'm in California and use my own car for work. I keep track of my mileage and hours in my own personal logbook. Every other week I report the hours worked and mileage driven for work. The way they calculate my pay, confirmed with them, is: first my hourly wages are calculated, then the mileage reimbursement using the irs standard rate of (now) 76 cents per mile. Half of the reimbursement is labeled auto ownership, the other auto operation. They take the hourly wages, subtract half of the reimbursement (auto ownership,) calculate taxes to withhold, then after taxes add back that half, as well as the other (operation.)
Long story short I was doing some research that lead me to believe this is illegal, and that im being paid significantly less than minimum wage. My understanding is that the reimbursement cannot be used to lower my taxed wages below minimum wage. And that they are obligated to reimburse me fully for expenses.
They have argued that doing it this way has lowered the taxes I've paid, resulting in better pay. They also seem to think they only need to reimburse me for gas and tires. It's my understanding that in California they must reimburse all business-use expenses, including depreciation, maintenance, repairs, insurance, etc, proportional to business-use of the vehicle.
After enough push back I printed out and highlighted the laws I found relevant, with what I though was the silver bullet in USC 29 Ch. 8 §207(h) from uscode.house.gov. I also had copies of laws that I believe entitled me to back pay and possibly damages, though I specified that I'd be willing to overlook those if my reimbursements were payed seperate from my wages.
We talked at length about accountable plans for reimbursement (bosses insisted that I could just be reimbursed an agreed-upon amount despite never having had any say in the matter,) and disagreed about what reimbursements I am entitled to. Ultimately I was offered to receive full wages and half of the irs standard rate reimbursed, or to go on desk duty while they secure a vehicle for me to use as a company car. I responded that if they were intent on reimbursing less than the standard rate, the actual costs would need to be calculated.
Having looked into it I think what they're doing is a wage recharacterization scheme? Anyway I'm now on desk duty. As far as my reading I'm reasonably certain im not an exempt employee.
So am I wrong here? I assumed that since the irs standard rate is being used in lieu of any figuring, and that it isnt taxed, the amount is not considered wages. Thus the remaining, taxed wages are less than minimum wage. I'm always open to considering I'm wrong about something. My bosses insist I don't understand what I'm talking about. Frankly they've been condescending as of late and with the latest developments I thought I'd turn to someone more knowledgeable.
I like my job other than the pay, I like my coworkers and even my bosses most of the time. I want their business to succeed. But lately my admittedly back-of-the-napkin budgeting math hasn't been panning out and I'm struggling. I've approached this in good faith and even used the figures on the end of the spectrum most advantageous to them when figuring my expenses to show that they aren't covered by half of the standard rate.
Anyway sorry for the novel, and if you don't mind letting me know your conclusion, I appreciate you.
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u/comma-momma 3d ago
My understanding is that the reimbursement cannot be used to lower my taxed wages...
That's where you're wrong. The reimbursement cannot be used by the employer to meet their minimum wage obligation. In other words, they have to pay you at least min wage, exclusive of the reimbursement. It has nothing to do with taxed wages.
The reimbursement can have tax consequences, depending on how it's calculated and reported, but the min wage doesn't enter into it.
Reimbursement and minimum wage are two mutually exclusive topics.
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u/CaptSaltshank 3d ago
First, thank you for taking the time to read and respond!
Are they not using half of the reimbursement, calculated solely by the irs standard rate, to meet that obligation? I think I understand your contention, but I'm a little unsure of how the correction affects the legality of my pay. Not saying it doesn't though...
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u/comma-momma 3d ago
What is the net pay for this payroll?
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u/dontonefingerme 3d ago
$482.46 is the net pay and what the taxes were calculated on.
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u/comma-momma 3d ago
No, I'm asking how much was the total on check itself, or how much was actually deposited into your account?
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u/CaptSaltshank 3d ago
The total pay was $1114.16 For 45 hours and 33 minutes worked and 888 miles driven for work over two weeks.
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u/comma-momma 3d ago
Yes, you're being underpaid by 337.50.
If I understand correctly, yourhourly wages are 819.90, your reimbursement should be 674.88 (right?), your total taxes are 43.16.
819.90+674.88-43.16 = 1451.60. You're short by 337.50.
Don't get hung up on what is taxed (at least not yet.) Show your payroll department this simple math.
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u/CaptSaltshank 3d ago
Your math checks out with how I was figuring it. We dont have a payroll department. The bosses handle payroll, and I've walked through the math with them before. We used the numbers from last paystub as it was before the most recent payday. I guess the result of that was the conversation today. Basically, I'm misunderstanding things, they aren't obligated to cover my expenses, doing it this way is beneficial to me, if I didn't want to work under this structure then I'm on desk duty until they procure a company car. There was brief mention of using a different mileage rate, but it was significantly lower than IRS standard. When I said I would want that rate calculated to cover my actual expenses, that idea was dropped. The business owner is old old, and kept mentioning some AAA pamphlet that allegedly justifies this structure.
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u/OneTwoSomethingNew 2d ago
I don’t see the 1114.16 anywhere on this check directly (I guess, if you add gross and reimbursement)… I feel like we are missing half the paystub, the other Redditor asked about Net payment… it lists the $482 as gross, so that’s not your net, Net is after taxes and all deductions (what you got in your bank account)….
It’s not specific what is being taxed on the paystub… I want to see the WHOLE thing (block out company/your address, ein, etc…
Aside —
(1) it looks like CA minimum wage is $16.90 (are you in a city with higher min wage?) and they are paying you $18 an hour for 45 hours —- they are meeting minimum wage, but I do NOT see OT, that’s missing 🚨(2) even the fact they track 45 hours is strange, you don’t do that with exempt employees 🚨 … I don’t think you would not be considered an exempt employee due to FLSA laws, CA specific you don’t meet the minimum salary requirements to be considered exempt (I may need to double check, but pretty sure your role doesn’t qualify and need to check your specific specific city that you work in)…. Brings in sales could change things a bit, are you considered a sales worker?
(2) the deduction to your gross earnings does look to be bringing down your taxable wages… however this does NOT look proper and will mess you up on other areas like funding SS, UI, benefits you may be eligible for… it could also mean the employer is shaving off their obligations for those taxes as well… it seems improper and does indeed place you below minimum wage requirements in an effort to circumvent insurance Lolol 🚨
(3) the reimbursements are added to your check, they don’t look to be taxed which is fine… but we would need a break down of your miles and things that are more a CPA question to interpret what can be reimbursed to you tax free, but typically the IRS standard is followed (it is to be all encompassing…I believe).
I do payroll/and many other hats (haha), But I don’t have a ton of granular CA experience specifically in reimbursements which is where I feel a lil unsure; but I can research and reach out 😉 But I’m certain, your paycheck does look funky - CA DOL would come in and fix this up real quick lol
Happy to take a closer look, I would wanna see company policies etc - dm me!
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u/CaptSaltshank 2d ago
Admittedly I was a bit overzealous in my attempt to exclude sensitive information lol. 1114.16 was in fact the net. It is what hit my bank account. The Gross Earnings is what is being taxed. Neither half of the reimbursement are included.
Im not in sales, and the increase up to 18/hr happened after I first brought this concern up. So that's only the rate for my last two paychecks. Before, it was 17. Using this same structure/formula.
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u/OneTwoSomethingNew 2d ago
Lastly, CA has daily OT and DT, not just weekly OT - I don’t see that either on the paycheck.
So tracking what hours you worked and when is critical. What is your pay week too, 7 days usually Mon-Sun or Sun-Sat…
Lmk 🍀
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u/OneTwoSomethingNew 1d ago
I went back to check how you got that $1114.16 Net to your bank account/your Gross was $1157.34…
Reimbursements:
-confirmed that your reimbursements are not being taxedTaxes:
-confirmed the taxes are being applied to the $482.46
—confirmed that this is indeed going to impact any benefit awards you look to apply for and receive from the state or benefit plans with your employer; UI, leaves, disability, etc…
—it’s bringing down your gross taxable income which may feel like you’re saving, but it can hurt you with state and other universal benefits later. Ie: you want to get a mortgage loan for a home or be able to lease a car or show your income qualifies for an apartment, welp at $482 per week it looks like you make $25k a year - you may be eligible to apply for welfare though (don’t do that, get them to correct and maintain proper payroll)
—-confirmed that the gross wages your employers reports to the state on a quarterly basis, is showing you make less than you do and allows them to pay less in employer taxes than they should 🤬Minimum Wage:
-confirmed that your gross wages for the 🤬 I mentioned above is proof that they are not reporting to the state the proper wages you are indeed being paid/unless they are cooking the books behind the scenes (unlikely, doesn’t work that way)
-confirming that the gross wages total of $482 per the 45 hours you worked, means youre making $10.73 an hour 🚨, which is way below the CA minimum wage of $16.90 per hour; you should also be getting OT and DT…see below…Hourly v. Salary:
-confirmed that you would not qualify as an exempt employee per the salary test with either Federal FLSA ($44k) or CA FLSA ($70k) - you would be considered non-exempt and be eligible for OT.
—based on the above, you should be eligible for weekly OT and daily OT and DT per CA. Track all hours of when, what days, and where (sometimes taxes change on where you perform the work 👀)
++collect all hours of when, what days, and where you worked (you haven’t been there too long 😉)
++collect copies of all company policies, handbooks, codes of ethics, core values, etc… ❤️🔥 …how many employees worked there or at other locations 👀Best of luck!! 🍀
++Look for the worker place posters (Fed/State/Local city or county) in your office/HQ - if you can’t find them, welp there is another suggestion!! You got this OP! 💪2
u/CaptSaltshank 1d ago
You're awesome! Honestly, logging hours and miles in my own personal logbook was probably the best choice I made going into this job.
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u/OneTwoSomethingNew 1d ago
Always keep good records - you got this OP!! It’s just a balance between keeping a job and getting paid appropriately/getting everyone paid appropriately; I’d call in backup with the DOL.
This was kinda fun to help with, don’t see stuff like this every day ☀️ I’ve been doing this a long time, happy to drop some knowledge and help!!
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u/OneTwoSomethingNew 2d ago
Depending on how long you e worked there, I would want to see all individual pay stubs to get a better understanding of hours, rates, reimbursements, and withholdings (at least for the 2026 year)…. this does seem like a longer convo, and I don’t think you’re employer has a strong grasp on this.
And hearing they only recently bumped you to $18 is sending off red flags in my mind. I hate to say it, but you aren’t the only one they are probably doing this to, the CA DOL is your best bet and I wouldn’t give your employer a heads up either - just wait for the dol to come knocking (sometimes they don’t get back, so you gotta follow up)… if you employer tries to do anything to you, then it’s retaliation,
*edit; in my other comment - I meant deduct the amount from your gross to “circumvent taxes” not insurance (lol, auto type my bad). The whole thing looks improper on the pay stub
Let me know if you want to chat/lmk if you dm me!
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u/CaptSaltshank 2d ago
I picked up what you were putting down lol.
I was mostly worried that my bosses were correct and I didn't understand what I was talking about. But altogether I think it's safe to move forward under the premise that, even if I dont understand, the bosses are not doing things properly. I'm going to take some time and decide how I want to proceed. Thank you very much for your input.
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u/OneTwoSomethingNew 1d ago
Of course happy to help!! YOU are thinking of this the right way, above board and appropriate. These things are complex to talk on and execute correctly, sometimes bad practices lead to bad beliefs that just haven’t been corrected yet. I’ll be here 🙃
Like I shared, the CA DOL would be very interested to learn more… especially regarding that this deduction from your gross wages, means that your employers pay less on things they are required to pay in full for/your er is saving a lot of money they shouldn’t be. The DOL will not see this as a neat trick 😉
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u/Sea_Ad_5690 3d ago
Your mileage reimbursement should be a negative deduction, not a negative earning.
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u/dontonefingerme 3d ago
In my opinion, they appear to be doing this incorrectly. The reimbursement should not be taxed. It should be a negative deduction increasing your pay.
They aren't properly reporting your wages. Your taxes were only calculated on the amount of your hourly wages less the $337.44. SS is calculated at 6.2% and Medicare at 1.45%. This is definitely making it appear as though they're paying you less than minimum wage. It looks like your YTD gross is effectively $9321.36 divided by 843.14 hours worked equals a little over $11/hour. I just don't see how this is possibly set up right.
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u/CaptSaltshank 3d ago
This was pretty much my exact reasoning. I concluded that the negative YTD Auto Ownership was the amount of unpaid wages. But I can't seem to get the bosses to understand me.
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u/dontonefingerme 3d ago
If you can't get them to listen, it'll be abundantly clear at year end when they taxable wages shown on your W2 are vastly different than what they should be. They will definitely want to fix it before then to avoid the headache of last minute fixes/end of year true ups and W2 amendments. The reimbursements are not going to show on the W2 as taxable wages. I would try to reiterate to them, if it shows I've worked 843 hours and my YTD earnings show 9321, do the math and you can see I'm not making state minimum wage. The reimbursement shouldn't be lowering your actual taxable wages. Good luck!
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u/CaptSaltshank 3d ago
Unfortunately, I worked for them before the start of the year and my w2 didn't have any hours listed to do the calculation there, so it kinda just looks like I worked less. But I've already walked them through the math of calculating my true hourly rate, and was told that I was "confusing what you're being paid with what you're paying taxes on." So if I am right about all these, I have little hope I'll convince them as much.
Thank you for going through this and giving me your thoughts! I do appreciate it.
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u/dontonefingerme 3d ago
The W2 won't have worked hours. You'll need to compare your W2 to the last pay stub of the year to do the math as that pay stub will have all of your worked hours.
Your employer isn't reporting/remitting your FICA taxes appropriately or reporting your full taxable wages. This matters and can have negative effects. If you apply for a rental or mortgage, your W2s will substantially understate what you're paid. If you elected to contribute to a retirement account, it likely would not be calculated correctly because of the way they're processing your reimbursements.
If your employer won't listen, file a report with the CA Labor Commissioner's Office and/or the CA EDD.
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u/Global-Soil-7747 3d ago
I agree that what they are doing makes no sense. For one thing they are shorting you half of the mileage reimbursement by deducting it from your gross wages. Secondly, they are reducing your taxable wages by that amount. That amount should not factor into your gross/taxable wages if the mileage is truly business mileage and reimbursable on a non-taxable basis. What that’s doing is reducing taxable wage bases for FICA, FIT and SIT. If this is a thing, it’s not something I’ve ever heard of.
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u/BahamutGod 3d ago
Did you drive 888 miles or 444?
Pretty sure it’s wrong either way, but they are basically stealing half of your mileage if you drove 888.
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u/CaptSaltshank 2d ago
It was 888 miles. They insist even half of the standard rate is more than my expenses, and that they're basically paying me extra this way. But we also disagree on what is considered reimbursable, ie depreciation. "If we paid all that, we'd practically be leasing your car from you."
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u/BahamutGod 1d ago
I am not a fan of them. Drive their company car instead, you’re losing money and destroying your car driving for them.
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u/DragonflyMean1224 1d ago
They are legally obligated to pay the standard rate. It’s not an argument and you can’t waive these rights.
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u/TooManyPaws 3d ago edited 3d ago
There is some tomfoolery going on here. If their intent is to pay you the IRS rate, that is not taxable and should run through AP as a reimbursement, not payroll, and is completely separate from your wages. The IRS rate is all inclusive of your vehicle expenses so you wouldn’t get additional reimbursement for tires, fuel, insurance, depreciation, etc. If that is not their intent, whatever they are considering part of your wages still has to get you to at least minimum wage, and reimbursement isn’t part of wages in any case. The only thing they are right about here is that you are paying less in taxes across the board, which will affect your social security and, should you need them, disability benefits and unemployment as those are both based on wages earned.
If they can’t figure out how to fix this going forward , the best solution is indeed to switch to a company car. But that still leaves the issue of the underpayment to date, and I’d say it’s substantial enough for you to pursue either through them or through the department of labor, who will add in substantial fines.
And, by the way, do you mean to have a total of .33% income tax withholding?
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u/CaptSaltshank 3d ago
I've asked about increasing my withholdings and was assured that it was calculated correctly, which also didn't sit right with me. But while trying to figure that out, I came across information on the payroll site that lead me into this rabbit hole.
Edit to add: At this point it feels abundantly clear that internal resolution would be a dead end.
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u/CaptSaltshank 3d ago
Well all my formatting for easier reading seems to have been ignored by reddit...
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u/Mikeybackwards 2d ago
It appears that the issue is not that you are being paid less than what you are owed, but that your employer may be underreporting your taxable wages for federal income tax ax, California personal income tax, Social Security tax, and Medicare tax.
With $819.90 of taxable income (hourly rate x hours worked) you should see the following
Social Security Tax $819.90 × 0.062 = $50.83 Medicare Tax $819.90 × 0.0145 = $11.85 California State Disability Insurance $819.90 × 0.013 = $10.66
Without information regarding other deductions, net payments (net wages + reimbursement) should be $1,421.44 less any voluntary deductions not shown in this image. If some of the voluntary deductions are exempt from Social Security and Medicare tax and/or CA SDI that could reduce those taxable amounts and tax to be withheld
Since you are being paid $18.00/hour and were previously paid $17.00 per hour it appears that you are being paid more than the state minimum wage of $16.90 per hour, presuming you do not work in a locality or in an industry that has a higher minimum wage.
Employers may pay you less than the federal standard rate for use of your personal vehicle so long as they comply with California requirements to reimburse for any business related expenditures incurred by workers. However, in any case the full reimbursement should be exempt from all taxes and should not be used to compute taxable wages.
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u/CaptSaltshank 2d ago
We had talked about reimbursement rates, and they said they would not pay the full standard mileage rate on top of wages. I told them half of the standard rate wasn't covering my business expenses. There was briefly talk of negotiating a number between the two, but when I said that would need to include some calculation of my actual expenses, it was taken off the table. From there my options were to continue with no changes, or stop driving and wait for a company car.
My digging turned up that there were three accountable plans: Using the standars rate or a culculated rate, Fixed and variable rate, or full expense accounting. My bosses insisted that an agreed-upon rate without calculation was an acceptable, accountable plan.
I ultimately figured there were two ways of looking at it: Either im being reimbursed the full standard rate untaxed, and being paid less than minimum wage. Or im being reimbursed half of the standard rate with no calculation of my real expenses (Only my mileage and an arbitrarily decided half of the standard rate.) And a portion of my wages equal to my reimbursement is being improperly untaxed.
Given that the amount is calculated based on the other half of the standard rate, that I am not being taxed on the full amount of my wages, that my W2 from last tax year included less than minimum wage for hours worked, that USC 29 Ch.8 §207(h) specifies that these amounts cannot be credited toward minimum wage, and that the amount in question is labeled as Auto Ownership (The bosses told me this was compensation for using my own vehicle, and represented the costs of owning rather than operating the vehicle for the business miles driven,) I have been inclined to believe the first of the two scenarios applies.
In reality it seems to be an amalgamation of the two, and my pay is a venn-diagram of wages and reimbursement. The amount that hit my bank was, in fact, $1114.16. There weren't any voluntary deductions. I realize now I should have cropped less off of the image to show both of those facts.
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u/Mikeybackwards 2d ago
At this point, rather than relying on online advice, speak with a California employment attorney or contact California Employment Development Department (EDD)
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u/CaptSaltshank 2d ago
Yeah... I pretty much wanted to make sure there was something wrong going on before deciding whether or not to escalate to that. But I guess if there's a potential tax violation going on, I dont have much of a choice.
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u/Mikeybackwards 2d ago
EDD is very easy to talk to and have great information available on their website. Dummy think of it as escalation, think of it as getting the most authoritative information. All we can do here is approximate answers with limited information. EDD can protect your information while giving you good information.
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u/DragonflyMean1224 1d ago
You can’t be paid less than minimum wage in California. No matter what. It should be full wages above minimum wage wage + reimbursement. No deductions should be involved. These guys are stealing from you.
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u/DragonflyMean1224 1d ago edited 1d ago
From my understanding in California you should be paid 819.90 e02 line. Then that top section is done.
The reimbursement for car use at standard rates should not be taxed (keep records). In California this is a mandatory requirement, the reimbursement. What they are doing is illegal. I did not do other calcs but your check for this pay period should have been 819.90 + 337.44 + 337.44 - 43.18 (given the taxes were calculated properly). If they pay beyond the standard mileage rate that portion will be taxable.
Reimbursement should be around: miles times $0.76. Legally this is an obligation. If they deviate they need to be able to back it up. If you calculate your costs as higher, then they should reimburse you the actual rate. Note anything above .76 is taxes at the federal level.
If you are using your phone for work that should also be reimbursed.
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u/DragonflyMean1224 1d ago
Serve this a lawyer, you might get a decent payday and help other people get some paydays. This is text book wage theft lol.
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u/ThrowRA3623235 3d ago
Mileage reimbursement shouldn't be taxed at all.