HR Management & Compliance

Tips for Reimbursing Employees’ Remote Work Costs

New questions and considerations continue to arise because large portions of the workforce are working remotely. It’s a good time to review what telework costs are reimbursable. As you’ll see, the rules can vary widely by state.

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Workers Scattered Across Many States

Working from home continues to bring up questions employers may not have had to consider before the COVID-19 pandemic—or at least not on such a wide scale. Both employees and employers are wondering what remote work expenses are reimbursable, if at all.

Businesses with employees working remotely across several states also need to think about each state’s laws on how to address and reimburse expenses. States vary in terms of what they might consider to be a work-from-home expense and whether it’s automatically reimbursable to the employee.

Iowa

Iowa has a fairly narrow definition of telework expenses for reimbursement purposes. The state’s code specifically provides:

Expenses by the employee which are authorized by the employer and incurred by the employee shall either be reimbursed in advance of expenditure or be reimbursed no later than 30 days after the employee’s submission of an expense claim.

If an employer refuses to pay all or part of each expense, it needs to explain why to the employee within the same period in which the amount would have been paid. In general, the net result is only employer-authorized expenses would be eligible for reimbursement. You could grant authorization through a policy or a program.

Illinois

The Illinois Wage Payment and Collection Act requires employers to reimburse an employee for all necessary expenditures incurred within the individual’s scope of employment and directly related to services performed for the organization. Necessary reimbursements include “all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.”

Employees are required to submit documentation about any necessary expenditures within 30 days of incurring the expense unless the employer allows a longer period in its written policies. If supporting documentation isn’t available, the employee can submit a signed statement about the expense.

The employer isn’t responsible for reimbursement if the employee fails to comply with the written policy. The employer is responsible only if it authorized or required the employee to incur the necessary expenditures.

For example, if an employee follows the policy for requesting an additional computer monitor and the employer approves, it’s reimbursable. But if the individual decides to buy the monitor and requests reimbursement without complying with the policy, and the employer didn’t authorize the purchase, it doesn’t need to pay for the device.

Additionally, the employer isn’t responsible for paying any portion of the expense that exceeds specific reimbursement guidelines in its written policy as long as it doesn’t institute a policy of no or only de minimis (minimal) reimbursement.

California

California has one of the nation’s most complicated and well-defined employee expense reimbursement laws. Employers must reimburse an employee for all necessary expenditures incurred in direct consequence of completing the job duties. “Necessary expenditures” are defined as reasonable costs incurred by the employee. The statute’s express purpose is to prevent employers from passing their operating expenses on to their workers.

Employers must reimburse employees for costs if they are required to use their personal cell phones for work-related calls. That would be true even if (1) the employee’s cell phone plan has unlimited minutes and (2) the use of the phone for work-related calls didn’t result in any additional fees beyond what the individual would have normally paid for her plan. Case law indicates the employer must pay a reasonable percentage of the bill.

Employers may account for reimbursement by providing an increase in the base salary or commission rate provided they can “establish some means to identify the portion of overall compensation that is intended as expense reimbursement, [and] that the amounts so identified are sufficient to fully reimburse the employees for all such expenses actually and necessarily incurred.” Importantly, they must explain the benefit calculation to their employees.

Under California law, the determination of whether certain expenses are “necessary” is fact-specific and depends on the totality of the circumstances, but claims have been made for cell phone service, Internet access, shipping, office supplies, desks, chairs, and similar items.

Big Picture

With telework more common during the pandemic, you need to think carefully about your reimbursement policies and how they intersect with state law.

Seven states (the three listed above as well as the District of Columbia, Massachusetts, Montana, and New York) have statutes governing reimbursement of business expenses incurred by employees, including those who telecommute. Each state makes it clear that a written policy about how to handle reimbursement is critical to employer compliance.

Employers recently adopting work from home should consult with an employment attorney to review their existing policies and draft updates to clarify expense reimbursement. This is particularly important if there are employees working from home in multiple states and your current policy doesn’t address the particularities of each state’s laws.

Jo Ellen Whitney and Nicole M. Krueger are attorneys with the Davis Brown Law Firm in Des Moines, Iowa. You can reach them at joellenwhitney@davisbrownlaw.com and nicolekrueger@davisbrownlaw.com.