Massachusetts Mileage Reimbursement: Law, Methods, Mileage Rate

Massachusetts legal requirements for mileage reimbursement

You need to reimburse employees for mileage in Massachusetts. Regulation 454 CMR 27.04 (4d) explicitly states that employees must be compensated for work-related transportation costs incurred during their work hours. The regulation includes the use of a private car, parking fees, bus tickets, and other essential expenditures associated with job-related travel.

If an employee needs to report to a location other than their regular worksite, they must be reimbursed for transportation costs and any travel time that exceeds their typical commute. However, employers can request documentation of these expenses (invoices, receipts), which may include proof of driven mileage if a person used their own vehicle. 

If you operate in or have employees in Massachusetts, not following these reimbursement rules can make you non-compliant with state law — which means fines and other penalties. This mandate applies specifically to employees engaged in an "occupation" (as defined by Massachusetts General Law MGL. ch. 151 s 2). 

Certain professions may not be eligible for mileage reimbursement if travel expenses are already factored into the employee's compensation structure. Additionally, individuals classified as independent contractors rather than employees may not be entitled to mileage reimbursement under the same legal standards.

Methods of mileage reimbursement in Massachusetts

Companies in Massachusetts usually reimburse employees using one of these four common methods:

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

Each of these come with their own set of record-keeping requirements, so companies have to consider all the pros and cons before creating their vehicle reimbursement policy. For detailed information, you can refer to the Mileage Reimbursement Rules for employees and employers.

Cents-per-mile (CPM) method

CPM is very simple to implement and manage, especially with the help of mileage-tracking apps like MileIQ. Employees receive reimbursement based on a predetermined rate per mile traveled — which means they need to report business mileage driven with information about each trip’s purpose and date. 

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Typically, companies utilize the IRS standard mileage rate for business, which was set at 67 cents per mile for 2024, because that allows for tax-free reimbursements.

Companies may choose to issue reimbursements using a higher rate, but any amount that exceeds the IRS standard mileage rate is subject to income tax. 

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Since there’s no need to keep track of every vehicle-related expense, CPM is a popular method with both employers and employees. All that’s required is mileage tracking (plus dates and purpose of the trip); then the number of business miles can be multiplied by the reimbursement rate. Some mileage tracking apps, including MileIQ perform these calculations automatically, so employers don’t have to do it themselves.

FAVR method (Fixed and Variable Rate Reimbursement)

The Fixed and Variable Rate (FAVR) method is a more complex approach to mileage reimbursements. However, it is considered by many as the most accurate method. It distinguishes between fixed expenses, such as insurance, depreciation, taxes, registration, and licenses, and variable expenses, including fuel, maintenance, oil, and tires.

The FAVR method aims to prevent overpayment or underpayment by considering actual and local gas prices. This approach ensures accurate and fair reimbursement for both low-mileage and high-mileage drivers since the fixed component of the reimbursement is independent of the miles traveled.

Although the FAVR method is not subject to taxation, its administration is relatively complex. Businesses using the FAVR method often need to outsource administrative tasks to a third party because the record keeping process can get rigorous, especially for larger teams.

Actual expense method

The actual expense method is also on the complex side. It requires employees to track mileage plus keep documentation of all vehicle-related expenditures, such as fuel, repairs, parts, supplies, and insurance. The reimbursement is calculated based on the percentage of business miles driven over a given period. For example, if out of 10,000 miles an employee has driven, 5,000 were business miles, they can get reimbursed for 50% of all the costs. 

The method aims to reflect the costs incurred by the employee accurately. However, it may lead to disagreements regarding what cost should be included in reimbursement. 

For instance, employers may disagree with including car wash expenses because they may not see them as business-related. However, if an employee’s position requires a certain element of presentation while meeting clients, the cost should be validated. 

If your organization ends up choosing this method, keep in mind that while it is considered accurate, the amount of record-keeping required may make it hard to administer correctly. Compensating employees for the correct amount may also get tricky since there are plenty of gray areas when it comes to travel expenses.

Lump sum method

The lump sum method, often called the "gas stipend," is a fixed monthly payment to offset vehicle usage expenses. This straightforward approach is favored by companies seeking simplicity, as it eliminates the need for mileage tracking or record-keeping. 

Despite its simplicity, the lump sum payment method presents its own set of challenges. The primary concern is that the fixed payment may not cover employees' actual vehicle operating costs, which may violate state laws and cause dissatisfaction. On the other hand, low-mileage employees may be overcompensated due to the same issue. Lump sum payments are also subject to regular income tax, which could further increase dissatisfaction, since drivers will not be seeing the entire allowance amount in their bank accounts.

Due to these potential issues, the lump sum method requires a certain level of awareness from employers. You’ll need to be diligent about monitoring costs and be willing to update the allowance if it doesn’t correspond with actual expenses.

Massachusetts mileage rate 2024

Massachusetts law requires employers to reimburse employees for using their personal vehicles during work hours, but the reimbursement rate isn’t specified. 

Still, many companies use the standard mileage rate provided by the Internal Revenue Service. The IRS updates the rate periodically after thorough, independent research of the vehicle-related costs, including fuel, maintenance, depreciation, tires, insurance, and more. 

The standard mileage rate for 2024 was set at 67 cents per mile. 

Save time on employee reimbursements

If you use CPM to reimburse employees, you’ll need to verify their mileage, not to mention perform calculations and deduct commutes (which are not reimbursable). Similarly, employees need to track every business drive and note where they started and ended each trip, the date, and reason for driving. 

Using a paper logbook or a spreadsheet would make this process take hours. MileIQ’s tracking app does most of the work for you — drives are tracked automatically and reimbursement amounts are calculated based on the IRS standard rate or your custom mileage rate. All you need to do is verify the drives and click approve or reject. 

Your drivers don’t even need to remember to start the app since MileIQ works in the background, with or without cell service. Best of all, MileIQ makes reporting much easier come tax season.