Exploring The Law On Use Of Private Vehicles In The Workplace
The use of a personal vehicle for business-related activities is generally governed by the contractual arrangements between the employee and employer, or any related agreements or company policies regarding business use of vehicles. However, certain federal and state laws also govern the use of personal vehicles in connection with employment. Employers and employees should be aware of these laws as they may impact the extent to which the employer can be held liable for an accident involving work and commuting.
One federal law that impacts use of personal vehicles for business purposes is the Fair Labor Standards Act (FLSA), which requires that employees routinely compensated on an hourly basis be paid for all work-related activities. Under this law, employers must pay non-exempt employees for compensable travel time. The Department of Labor defines "compensable travel time" as: all time spent by the employee traveling to and from work. There are some exceptions in which the efficient administrative practice of an employer must require that an employee travel away from the normal home or work place for purposes of work or other functions that the employer would normally expect to be inconvenienced, for which the employer may not owe additional pay under the FLSA.
Several states have enacted laws that similarly hold employers responsible for all work-related time, including compensable travel time , that employees are expected to devote to their job duties. The California Supreme Court has held that non-exempt employees must be compensated for all hours worked and this includes hours spent driving. California law also provides that if travel time is a principal activity of the job, then the travel time is non-compensable and the employer bears the burden to show this.
The National Labor Relations Act (NLRA) similarly requires employers to compensate employees for all work performed, but this law only applies to unionized employees. However, similar obligations to compensate employees for all work performed may arise under an employment contract or collective bargaining agreement.
The Internal Revenue Service (IRS) also imposes requirements relating to the use of personal vehicles in connection with business activities. If an employer requires that an employee use his or her own vehicle for business purposes, the employer is entitled to a business deduction to cover certain expenses related to the required vehicle usage. In order for these deductions to apply, employers must reimburse employees on an accountable plan. An accountable plan is one that meets the following three requirements:
An accountable plan must be in writing to clearly state each requirement. If the employer does not create a written plan, then it will be treated as a non-accountable plan and none of the expenses will be deductible to the employer. Under a non-accountable plan, reimbursement for employee business expenses paid back to an employee is treated as taxable income to the employee.
Business Use Requirements Regarding Insurance
If you are going to use your new or existing vehicle for work, you may need a business auto policy to cover it. Whether you need the additional coverage will depend on a number of factors, including the type of work you perform and how often and what you will be hauling. A commercial auto insurance policy covers a vehicle when you are using it for business purposes, which is not necessarily the same as your personal auto insurance policy, which covers you when you are driving your car for personal reasons.
Most commercial policies will cover both owned vehicles, those that are titled in your name, business name, or trust (this is the case with a domestic LLC and other entity structures), and hired or non-owned vehicles, which can include borrowed, rented or leased vehicles. Some business auto policies also cover fleets, if your company has more than five vehicles and qualifies as a fleet. If you are driving your own vehicle, this may be covered if you have hired or non-owned vehicle coverage, so it is important to check.
A commercial auto policy can be an endorsement or riders to your personal auto policy or a separate policy. In South Carolina, a business auto policy can be written as a Greater South Carolina UM-Coverage. All commercial auto policies assume commercial use until there is a request by the business to restrict the use of the vehicle. However, personal use of a vehicle must typically be 10% or less to be covered.
Employer and Employee Obligations When Operating Vehicle
For all the benefits of using a personal vehicle for work, there are many reasons an employer should be careful. And that’s because in Ontario, an employer is responsible for any and all accidents that result in property damage or injuries while an employee is driving their own car for work. In most cases this really means the employer is responsible for any accident that occurs while the employee is working, so long as the accident happens during the course of normal travel even if it’s coming back from work or heading to work in the morning. The Province suggests, "when an employee’s travel time takes place during normal business operations, a reasonable test is to see if the reason for the travel is tied to the work being done when an accident occurs" For example, an employer would be responsible for damages if their employee is driving to an off-site meeting or transferring physical files from one location to another. The test hinges on whether the employee was doing work for their direct employer and not whether they were doing work for a different company. In these cases, the most important thing for an employer to do is provide the employee with a written travel policy that clearly outlines the rules for travel. The policy should also outline employee reimbursement for mileage, car maintenance or other costs." Any time a vehicle is driven with more than one person, whether it’s clients or co-workers, there’s a possibility of an accident. Much like regular commuting, an employee is expected to be safe when they’re driving for work and if they get into an accident because they were wearing flip-flops, were distracted using their phone or put the brakes on at a stop light they’d normally go through without issue, they’re considered to be negligent and held responsible. Because Ontario is a "no-fault" province, vehicle insurance claims happen no-fault and no one gets "dinged" and has to pay out of pocket for damages.
Tax Reimbursements and Deductions
It is important to understand the tax process when using your personal vehicle for work. Employers can reimburse you for personal mileage, but otherwise, not much. Even if your employer reimburses you for mileage or actual expenses, they must show those payments gross income on your W-2 form. This can then be deducted on your personal taxes as an unreimbursed employee business expense on Schedule A of IRS form 1040 .
For mileage reimbursement with an employer, one of three things should occur after the end of the year: Companies can pay employees a set amount for mileage, or use the standard rate set by the IRS each year. For 2018, the IRS standard rate is 54.5 cents per mile, rising to 58 cents in 2019. They can also use a combination of the two. You cannot, as an employee, deduct any of your initial purchase of a vehicle or the costs of maintenance, insurance, or gas for commuting to and from work. You must keep accurate records of all of your mileage for any business trips that are paid with employee expenses.
Liability Risks
As is evident from the previous section on insurance, there are risks and liabilities inherent in an employee using their personal vehicle for work. For example, if an employee were to have an accident while driving their vehicle for work, and the vehicle were not covered by the employee’s insurance, or, alternatively, if the employee did not have valid insurance, the employee could be directly liable to the third party injured or whose property was damaged by the accident. Further, if an employee were to have an accident while driving a personal vehicle for work, and the personal vehicle were not covered by his or her company’s insurance, the employee could be directly liable to the third party injured or whose property was damaged by the accident. Accordingly, even if an employee does have valid insurance, as the policy holder, they may have significant risk if the vehicle were to be involved in an accident or in some other manner found to be at fault legally, both criminally and civilly.
Alternatively, if the employee has an accident while driving their personal vehicle for work, and the employer’s insurance covers the vehicle, if the employer is considered vicariously liable, which requires a find of negligence by the employer, the employer would pay out all claims for damages to the employee for accident related costs, including property damage, income loss, medical and rehabilitation costs, attendant care costs and other damages (subject to limitation), and liability to injured third parties and their dependants. This liability could be substantial, and, although borne by the employer because it typically owns the insurance policy, it could lead to objectionable increases in premiums for clients who otherwise do not agree with the employer using its insurance policy to pay non-employees – the employees themselves.
Moreover, if the employer is found to be negligent, the client could lose the benefits of the insurance policy. In that case the benefits would be payable by the employee personally. Of course, if the accident results in the death of the employee or a third party, or the employee suffered catastrophic injuries or damages, a significant proportion of the possible liability could be encountered.
In the context of the Paragraph 10 employees, the statute creates obligations on the employer to take certain actions to ensure, to the extent possible, that its employee is insured. However, nothing in the statute protects the employer in the event the employer fails to comply with the statutory requirements. Furthermore, in the event that the employee is not properly covered under the statute, such failure as a result of the employer’s negligence causing losses to third parties, the employer could itself be held liable for the losses. Accordingly, in at least one case, the ability of the employer to rely on its statute liability insurance for its own protection from liability has been called into question.
Finally, in the event of a fatality, or a serious injury, car accident involving a Paragraph 10 employee using his or her vehicle for work, liability issues for the employer could arise in several forms: In these latter situations, monetary damages could be very significant. Both the case law and as a result of tort liability reform legislation over the last several years significantly restricts monetary awards for non-economic damages. For example, the current maximum possible non-economic award for loss of guidance and care claim of a spouse and children is $366,000.00 (1996 award, adjusted for inflation). Given the magnitude of the possible awards, employers should think carefully about the insurance implications of allowing or mandating employees to use their personal vehicle for work (whether regular employment or under the Paragraph 10 policies).
Practical Examples and Scenarios
An important example of why a company needs to have a policy on employees using their personal vehicles for work comes from the case of a Fortune 500 company in Michigan’s insurance industry in which one of the company’s executives was injured in a serious crash. The executive was in a traditional driving position; his company provided him with a vehicle and gas card because of the demands of his job, and he sometimes used that vehicle for personal reasons. The company’s injury policy issued by its fully-insured carrier covered the executive’s claim for PIP benefits, but the company granted him what is known as a "pursuit to policy" fee that allowed it to subrogate against the other driver and collect no-fault PIP benefits from them. Incredibly and despite these policies, the company’s insurance broker claimed that due to the details of the case, the company would be liable to pay $600,000 out of pocket because the insurer demanded that the company indemnify the carrier. Luckily, the executive was so badly injured they didn’t have policy limits exposure, but the costs of this improper situation were staggering . A sample of some of these costs are set forth below:
- Initial out of pocket costs of $600,000 plus the carrier’s pursuit to policy fee of an additional $300,000;
- Additional 1.5 million for an excess carrier to settle a claim when they couldn’t get subrogation rights from the policyholder’s carrier;
- The insurer demanded that the insured organization indemnify and hold it harmless for any claims as a condition of continuing coverage – so even though the claim was covered within the policy limits, the carrier still wanted to extract money from the insured;
- The insured client had no idea how broad the indemnification provisions in the policy were and apparently neither did the broker; and
- The company’s broker was incentivized to get more money for itself instead of covering an injured employee; the strokes of losses and fees the broker gave the insurance agent cost the insured the equivalent of a full-time employee.
The lesson here is that not having a clear and concise company policy and an actual organization to handle the subrogation pursuit can make or break a case. Make sure you are doing both.
