October 2026 | Workplace Compliance | CNY HR Now
If your employees use their personal vehicles for business purposes, it’s time to review your mileage reimbursement practices.
Effective July 1, 2026, the IRS increased the optional standard business mileage rate from 72.5 cents to 76 cents per mile. Employers that use the IRS mileage rate to reimburse employees should ensure their policies, payroll systems, and expense tracking processes reflect this change.
However, updating your mileage rate is only one part of the equation. Employers also need to consider federal wage and hour requirements and applicable state reimbursement laws.
What Is the New IRS Business Mileage Rate?
The IRS standard mileage rate for business driving increased to 76 cents per mile effective July 1, 2026, up from 72.5 cents per mile during the first half of the year.
The rate is optional for employers. Federal law does not universally require employers to reimburse business mileage at the IRS rate. However, many employers use it as a practical method for calculating employee reimbursement for expenses associated with operating a personal vehicle for work.
If your organization uses the IRS rate, confirm that mileage incurred on or after July 1 is reimbursed at the updated rate. Your records should reflect the date the mileage occurred, rather than simply the date the employee submitted an expense report or received payment.
Federal Wage and Hour Compliance: Why Mileage Reimbursement Matters
Although the Fair Labor Standards Act (FLSA) does not mandate the IRS mileage rate, employers must be careful that unreimbursed business expenses do not reduce a nonexempt employee’s effective wages below the applicable minimum wage or interfere with required overtime compensation.
For example, an employee who must use a personal vehicle to perform job duties may incur expenses for fuel, maintenance, insurance, depreciation, and other vehicle-related costs. If the employer fails to reasonably account for those expenses, the employee’s out-of-pocket costs could create wage and hour compliance concerns.
Two 2024 decisions from the U.S. Court of Appeals for the Sixth Circuit, which covers Kentucky, Michigan, Ohio, and Tennessee, also highlight the challenges employers face when calculating vehicle expenses.
The court rejected automatically relying on the IRS mileage rate as the measure of vehicle expenses for FLSA purposes in the cases before it. It also rejected an employer’s generic reasonable-estimation method for reimbursing delivery drivers.
These decisions underscore an important point: Employers should not assume that simply using the IRS rate—or another generalized estimate—will always satisfy their wage and hour obligations. Reimbursement methods should reasonably account for employees’ actual work-related expenses.
State Laws May Require More Than Federal Law
Employers must also consider state-specific expense reimbursement requirements.
Some states, including California, Illinois, and Massachusetts, impose affirmative obligations to reimburse employees for necessary business expenses. Those requirements may extend to employees’ use of personal vehicles for work.
The IRS mileage rate is not a universal statutory reimbursement requirement across all states. Nevertheless, it can provide a useful benchmark when developing or evaluating a reimbursement policy.
For New York employers, the distinction between a generally recommended practice and a legal requirement is important. Employers should evaluate applicable state and federal wage and hour rules based on their workforce, pay practices, and the nature of the business expenses employees incur.
Organizations operating in multiple states should not assume that one reimbursement formula will satisfy every jurisdiction.
Five Steps Employers Should Take Now
The midyear mileage rate increase is a good opportunity to review your organization's broader reimbursement practices.
1. Update your mileage reimbursement rate.
If your policy follows the IRS standard mileage rate, confirm that your reimbursement system reflects 76 cents per mile for qualifying business mileage incurred on or after July 1, 2026.
2. Review your written policies.
Make sure your employee handbook, expense reimbursement policy, and mileage procedures are consistent. Clarify which expenses qualify, what documentation employees must submit, and how reimbursement rates are determined.
3. Evaluate minimum wage and overtime exposure.
Pay particular attention to nonexempt employees who regularly drive for work, including delivery drivers, field employees, and employees who travel between work locations. Determine whether your reimbursement method reasonably accounts for necessary business expenses.
4. Check state-specific requirements.
If you employ workers in multiple states, review the applicable reimbursement laws in each jurisdiction. Flat allowances, per-trip payments, and rates below the IRS standard may warrant additional analysis to determine whether they adequately cover employees’ work-related expenses.
5. Maintain accurate records.
Keep records of business mileage, dates of travel, business purpose, applicable reimbursement rates, and amounts paid. Consistent documentation supports your reimbursement practices and helps identify discrepancies before they become larger compliance issues.
The Bottom Line
The IRS mileage rate increase is a reminder that employee expense reimbursement should be an intentional part of your compliance program—not simply a number in your payroll system.
Employers should confirm that their rates are current, their policies are documented, and their reimbursement methods account for applicable wage and hour obligations. A periodic review can help identify potential exposure and create more consistent practices across the organization.
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Disclaimer: This article is for general informational purposes only and is not legal advice. Employers should consult qualified legal counsel regarding the application of federal and state laws to their specific circumstances.
Source for the underlying legal developments: Justin R. Barnes and Jeffrey W. Brecher, Jackson Lewis P.C., article discussing the 2026 IRS business mileage rate increase and related wage and hour considerations.