B. Meals, Transportation and Related Benefits

Generally, reimbursement for meals, transportation and related expenses is includable in an employee's gross income. When such benefits are taxable, the benefits generally must be reported by the employer and are subject to federal income tax, Social Security and federal unemployment withholding. Non-taxable benefits need not be reported by an employer to the IRS. However, a benefit is excludable from the employee's gross income if the value of the benefit is so small as to make accounting for it administratively impractical (e.g., a company-provided auto for six hours per month). If the company has a computerized accounting system, the burden is on the employer to demonstrate why it is unreasonable to track the benefits provided.

Employer-provided meals, meal money and local transportation fare provided to employees irregularly are excluded if offered on an occasional (e.g., three or less times per month) basis as a result of overtime and to enable the employee to work overtime. So too are special "provided meals" paid by the employee with a company charge account or employer-given cash at the time of the meal for the convenience of the employer. (Note: This rule does not apply to actual meal money or cash reimbursements paid to employees.)

Counsel Comment #40: To avoid exposing your company to an audit, only provide such compensation to those people who need to travel occasionally and not on a regular basis.

TIP: Since employers that provide workers with meal allowances and cash reimbursement for meals are usually required to report the value of such benefits, consider paying the meal vendor directly by charge account and be able to justify the exclusion based upon one of the above exceptions. When in doubt, always include the benefit as taxable income but consider paying your employees more taxable cash com- pensation to help offset an employee's higher tax burden.

Smart companies impose compliance rules for these items in company manuals and procedure books. Always have a written policy that sets forth recordkeeping requirements, reim- bursement rules for company-related expenses, and penalties the worker may sustain for not following such policies.

Auto Use

Demand receipts or specific information before reimbursing parking and toll charges. Require employees who use personal cars for business to keep records of whom they went to see, when, for how long, for what purpose, and the mileage and related expenses that were incurred. Where a personal car is used for business, always require proof of insurance coverage; insist on receiving such information annually. Some companies acquire non-ownership auto- mobile liability insurance policies as part of the company's insurance coverage to protect it against bodily injury and property damage claims, investigation and litigation costs from work-related accidents. Consider providing workers with written contracts which specifically authorize the individual to indemnify and hold the company harmless from any damages, claims, expenses or judgments arising from personal accidents incurred in company-provided autos.

Travel And Overtime

Travel time rules under the federal Fair Labor Standards Act (FLSA) and the Walsh-Healy Act are quite complicated and may cause your company to be liable for overtime pay for time spent by an employee during company-related travel (other than for normal commuting travel and time for eating and sleeping). Avoid violations or confusion with your employees in this area by disseminating written policies stating beforehand what time is paid for, at what rate, and clarify per diem arrangements, expense reimbursement and special allowances.

For non-exempt personnel away on overnight travel or who work away from a plant and outside regular working hours, one common method computes additional pay and overtime pay by adding total travel time and work time and deducting: (1) sleeping time up to a maximum of eight hours; (2) one-half hour each for breakfast and lunch; (3) one hour for dinner; and (4) some additional time each way for regular travel. Other companies pay for actual work time but add a per diem payment plus actual expenses for extended work away from the normal work site. Speak to a competent accountant or other professional for more details if applicable.