Business expense reimbursements for remote workers?
In redesigning what returning to the office will look like post-pandemic, many employers are opting to allow for a hybrid workplace where employees have a varied schedule of working both remotely and in the office. Other employers have opted for full-time remote work for their employees.
This brings a new set of compliance issues — one of which is whether the employer must reimburse employees for business expenses incurred while working remotely.
Federal Requirements Under the FLSA
Under the Fair Labor Standards Act (FLSA), employers are not required to reimburse employees working remotely for business expenses they incur while working from home or elsewhere.
This general rule is going to apply most of the time because only about 20 percent of U.S. states have enacted laws that require employers to reimburse remote employees’ work expenses. Still, employers should understand their obligations to reimburse employees for business expenses incurred while working remotely.
In addition, employers should closely monitor the compensation of any remote worker whose wage is close to minimum wage (for non-exempt employees) or an exempt salary threshold level (for exempt workers). Any expenses incurred by these employees that might drop their compensation below minimum wage should be reviewed carefully so employees’ wages stay in compliance with minimum wage and salary threshold levels.
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State and Local Requirements
Ten jurisdictions at the state and local level have enacted laws requiring employers to reimburse employees for certain business expenses:
- New Hampshire
- North Dakota
- South Dakota
- Washington, D.C.
Of course, all of them are different. Not surprisingly, California and Illinois have the most stringent reimbursement laws.
Also, in addition to the jurisdictions listed below, employers should be aware that other states require employers to reimburse employees’ expenses consistent with any written policies the employer may have.
In California, employers are required to reimburse employees for “all necessary expenditures or losses” as a result of the employee performing job duties.
What constitutes “necessary expenditures” is fact specific and varies based on the job type. For example, California courts have interpreted “necessary expenses” to include a reasonable percentage of an employee’s monthly internet or cell phone bill for work-related uses, even when an employee’s internet bill does not increase based on usage or if an employee has an unlimited wireless data plan.
The law in Illinois — similar to California’s expense reimbursement law — requires employers to reimburse employees for “necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.”
Illinois courts have interpreted this to require reimbursement for internet and cell phone expenses when they are used for work purposes. However, Illinois law includes a time restriction and requires employees to submit expense reimbursement requests within 30 calendar days of incurring the expense.
In Iowa, employers must reimburse employee’s authorized business expenses within 30 days of the expense.
Montana, New Hampshire, North Dakota, and South Dakota
Business expense reimbursement laws in Montana, New Hampshire, North Dakota and South Dakota generally require employers to pay back expenses or losses incurred by employees for performing job duties or at the employer’s direction.
Under Seattle Washington’s wage theft law, employers are required to pay employees all compensation owed to them. Seattle defines compensation to include any business expenses incurred by employees.
The District of Columbia’s expense reimbursement law requires employers to pay the cost of purchasing and maintaining any tools the employer requires to perform the employer’s business.
Note that the expense must be “required” in order to be reimbursable. If an employee’s remote work is entirely voluntary, then an employer would not generally be required to reimburse expenses for an employee to work remotely.
What Next for Employers?
Employers may want to consider creating a business expense reimbursement policy or reviewing their existing policy in light of the current trend into long-term remote work arrangements.
When creating a policy or updating an existing policy, employers may want to consider including the following:
- Detail of the employer’s method for ensuring employees are reimbursed for their business expenses, whether by a monthly stipend or by submitting detailed monthly reimbursement requests
- Clearly indicate what equipment the company will provide and what expenses an employee may need to incur when working remotely and the parameters on what the company will cover or not, keeping in mind the applicable law
- Identify the timeline and, for submitting reimbursement expenses, where to submit the request and what needs to be included with the request
The new hybrid work model that many companies are adopting opens the door to a new set of compliance challenges for employers. From I-9 forms to local taxes, unemployment insurance and cybersecurity, employers have several items to consider when employees are working from home.
Business expense reimbursements for remote workers is yet another. Employers should review their policy carefully with legal counsel to ensure they are in compliance with the law.