How much should an employer give an employee to reimburse them for the work-use of their personal vehicle? It is up to the employer to decide and for the employee to agree.
No law requires or sets a rate for the reimbursement of personal vehicle mileage expenses. There is no minimum or maximum vehicle reimbursement rate set by Ontario employment standards or by Canadian regulations.
The amount of money an employer must give an employee or a contractor for using their own vehicle for work purposes will be up to the parties to agree among themselves. In fact, an employer is free not to pay an employee for the use of their vehicle, although it seems unlikely any employee would agree to that over a prolonged period. Each kilometre a car clocks lowers its value. Moreover, vehicle expense reimbursements can be a tax deduction at the end of the year for the employer, so there are more benefits than just keeping employees happy.
Nevertheless, the Canada Revenue Agency posts an annual per-kilometre rate guideline that many employers follow in setting the rate for reimbursing their employees and contractors for vehicle mileage.
Still, the CRA rate is tax law, not employment law, and it represents the maximum tax deduction an employee can make for his or her car allowance. It does not set the minimum amount an employer must pay an employee/contractor for mileage. However, for practical reasons, many employers match this rate to pay their employees/contractors for vehicle mileage, although, as described above, they don’t have to. Employers are free to go above or below the CRA guideline. After all, it is just a tax guideline – it is not binding on employment relationships.
The current CRA Automobile Allowance Rate is located here.
Mileage Policy For Employers
Whatever vehicle expense reimbursement rate an employer chooses; it is a solid practice to make a written policy binding the vehicle expense reimbursement rate on its employees.
A good vehicle expense reimbursement policy will cover several different concerns:
- Require the use of an industry-standard app to track mileage
- Require that only work-related mileage be expensed
- Require that expenses must be submitted within 30 days
- Require that a manager must approve expenses
- State that all expenses are subject to an audit
- State that a valid license and insurance for occiasional or permanant commercial trips are always required
- State the mileage expense rate
- State that gasoline and out of pocket expenses will be reimbursed with appropriate documentation evidencing such expenses
- State when and why an employee may use their own vehicle for work reasons
- State that detours and non-work-related travel during work trips will not be reimbursed
- Consider asking for pre-approval for all trips
- Consider requiring that all vehicles be 5 years or newer to qualify for reimbursement. Reimbursement for mileage expenses for old cars has diminishing value and older cars look poorly for a company’s image anyways
Jeff is an employment lawyer in Toronto. He is the Principal of the Dutton Employment Law Group at Monkhouse Law. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles.