Illinois Mileage Reimbursement: Law and Methods of Reimbursement

Illinois legal requirements for mileage reimbursement

The specific regulation for employee reimbursements in Illinois is quite broad compared to Massachusetts and California, the other two states that mandate compensations for employees using private vehicles for work. 

Here’s a direct excerpt from the Illinois Wage Payment and Collection Act (820 ILCS 115/9.5):

“all necessary expenditures or losses incurred by the employee within the scope of employment and directly related to services performed for the employer.”

Because the statute refers to “all necessary expenses”, the use of private vehicles naturally falls under this law. If a company doesn’t provide reimbursements, employees can file a complaint to the Illinois Department of Labor or even seek compensation through the court system. 

However, it’s also worth noting that employers can reject reimbursement claims if employees don’t provide sufficient documentation of the expenses. For example, if an employee can’t provide a detailed mileage log, they may not receive reimbursement. That’s why instead of a traditional pen-and-paper log, many drivers choose to use a mileage app, like MileIQ, which tracks drives automatically. 

The law further clarifies that employers don’t have to reimburse for expenses caused by the employee’s negligence.

Methods of mileage reimbursement in Illinois 

The most common methods of employee reimbursement in Illinois are:

1. Cents-per-mile (CPM)
2. Actual expense method
3. FAVR (fixed and variable rate) method 

Each model has its own recordkeeping and reporting requirements. In general, using cents-per-mile (CPM) is easiest and simplest. The other methods are more complicated and require more effort, but they may result in more precise employee compensation.

Cents-per-mile (CPM)

CPM is typically the safest and easiest way for companies to reimburse employees for private vehicle usage.

This method is straightforward: employees track their mileage, and they're reimbursed at a fixed rate per mile. Most companies opt for the standard mileage rate set by the Internal Revenue Service (67 cents per mile for 2024). The rate is updated regularly to reflect the constantly changing vehicle usage costs, such as fuel, insurance, maintenance, etc. If the employer uses a CPM rate that’s below or at the standard rate, the reimbursements are tax-free and can be deducted on business tax returns.

Simplicity is the main draw of this reimbursement model. It's easy for both employers and employees, eliminating the need for complex expense tracking while providing a standardized and easily calculated process. This is especially true if employees use a mileage tracking app, like MileIQ, which tracks their drives automatically, along with the reimbursement amounts based on pre-set rate.

Actual expense method

The actual expense method for vehicle reimbursements involves employees meticulously documenting all expenses related to their vehicle, such as gas, repairs, and supplies. In addition, they must track mileage, noting the purpose of each trip, dates, and destinations. 

This method is valued for its accuracy, as it includes all the costs incurred by the employee. Of course, we’re talking about private vehicles, so the expenses aren’t reimbursed at a 100% rate. 

Using mileage records, employees must calculate business use percentage. For example, if you’ve driven 5,000 miles over a given period and 1,000 miles were business miles, your business use is 20%. That means you can get reimbursement for 20% of all your vehicle costs. 

Despite being time-consuming, it remains a highly accurate reimbursement method. It guarantees that the reimbursement fully encompasses all expenses related to owning and operating a vehicle, including fuel, repairs, tires, insurance, etc.

FAVR (Fixed and Variable Rate Reimbursement) method 

The FAVR method is one of the more complex ways of reimbursing mileage expenses. It breaks down vehicle costs into fixed expenses (such as insurance, depreciation, taxes, registration, and licenses) and variable expenses (like fuel, maintenance, oil, and tires).

This method considers actual and local gas prices, preventing over or underpayment. It can accurately and fairly reimburse both low-mileage and high-mileage drivers because the fixed part of the reimbursement isn't based on the miles driven.

Although the FAVR method isn't taxable, it can be tricky to implement and often requires specialized partner organizations to manage it effectively and affordably.

Optimizing employee reimbursements with MileIQ

In the past, drivers had to use actual paper logbooks to track their mileage for reimbursements. The method was cumbersome and prone to error. 

Tools like the MileIQ tracking app automate the entire process, from tracking mileage and calculating reimbursements to maintaining trip records for tax filing. With the help of MileIQ, employee vehicle reimbursements become much easier for both employees and businesses.