Written by Paula Crerar
May 4, 2021
According to one of our recent surveys, the majority of companies have had some or all employees working from home during the pandemic. In the post-pandemic era, some are now considering the option of remote work as a permanent benefit. As a result, we’ve been getting lots of questions from customers about how to adjust reimbursement policies to better address remote workers. They’re asking what expense reimbursements are obligations imposed by laws and regulations, and what other companies are doing to make remote workers as productive and motivated as possible.
Expense reimbursements for remote workers – company obligations
Before we get started on this topic, let me disclose that I am not a lawyer. As a layman, I’m passing on what I’ve learned from my research. Please work with your legal team to give you advice on complying with federal, state and local laws.
From a federal law perspective, the Fair Labor Standards Act (“FLSA”) only comes into effect if an employee must pay business expenses that bring their wages below the minimum wage or cut into overtime wages. Before the pandemic it was not usual for minimum wage workers to incur these types of expenses, but if you do now have minimum wage employees working from home, and they are required to purchase equipment such as a laptop or printer to do their job, this could meet this standard of bringing them under the minimum wage. In this case, you would need to reimburse your employee for those expenses.
From the perspective of state laws and regulations, reimbursement obligations are far from consistent. Only 10 states or regions (California, Iowa, Illinois, Massachusetts, Montana, New Hampshire, North Dakota, South Dakota, District of Columbia, and Seattle, Washington) have statutes or case law in place on employer’s requirement to reimburse business expenses. Many other states simply require that an employer reimburse workers in ways that are consistent with its written policies.
Legal risks are not insignificant, and claims can result in penalties and legal fees in addition to the reimbursement costs. According to law firm BakerHostetler, “expense reimbursement lawsuits were already commonplace before the pandemic, and with no end in sight to the pandemic and employees working from home, employers can expect additional lawsuits to be filed.”
If your remote work policies allow employees to work anywhere, it’s best to learn and comply with the regulations of the state that has the most stringent and well-defined rules. In this case, it’s California.
California law requires that employers reimburse workers for all expenditures “necessarily incurred by the employee in direct discharge of duties for the employer, or in obedience to directions of the employer.” Because many employees were forced to work from home during the pandemic, under this definition, companies would be required to reimburse employees for their “reasonable and necessary” home office expenses. These could include:
In some cases, these expenses fall under “mixed use,” such as cell phone or internet service plans that are used by employees for both work and personal use. In this situation, the company must reimburse a “reasonable percentage” under California regulations. That’s not easy to determine and the law is not clear as to what’s reasonable, so it’s expected that lawsuits will be filed where there’s a difference in the interpretation as to what’s reasonable. This can be mitigated by establishing a monthly stipend and defining what’s reasonable in the reimbursement policy.
So far, employers in the US have not been required to pay a portion of their rent. However, it appears that a court in Switzerland has ruled in favor of an employee arguing that the company should pay for a portion of their rent since they were required by the company to work out of their home. Stay on the lookout for any similar trends in the U.S. in the future.
Expenses that are a convenience but not required to perform one’s job, such as upgrades to higher internet speed, larger monitors, ergonomic chairs, or top of the line webcams, may be excluded from this definition, depending on the tasks that the remote worker is doing. If the expense is incurred on something that is unreasonably expensive, the company is not required to reimburse.
To avoid misinterpretations, make sure your reimbursement policies define what’s required and what is meant by “reasonable expense.” SHRM provides a great example of a reimbursement policy. (subscription required).
If your company pays a fixed amount toward these expenses in the form of a stipend, you should allow employees to submit expenses for reimbursement when an employee believes the stipend was insufficient to cover their work-related expenses. You can then consider whether to offer additional reimbursement or to decline the employee's claim.
Post-pandemic, if your company is not offering a work from home option, employees would use office equipment and supplies to perform their work. If an employee chooses to work from their home in this situation (e.g. they are neither required nor encouraged to work from home) they would not be required to be reimbursed for typical office expenses since all these are provided at the office.
How to avoid risk
In the past, reimbursement policies were created primarily to cover business expenses and anticipated that employees would use office equipment and supplies and would not have to purchase these. If the pandemic has caused a large proportion of your employees to work from home, review your current reimbursement policy and expand it to cover work from home situations. “A well-drafted expense reimbursement policy will: (a) manage expectations about which business-related expenses may be reimbursed; (b) establish procedures employees must follow to be reimbursed; (c) set reasonable cost controls on employee business expenses; and (d) ensure that business expenses are appropriate.” Be sure to communicate any changes or updates to your reimbursement policy.
Companies can minimize legal risks by:
So that’s the situation if you want to provide what is absolutely needed and required. But, over and above, what are other companies doing if they want to keep their employees motivated whether they want to work at home occasionally or full time?
Remote Work Reimbursement for Office Perks
To ensure happy, productive remote workers, some companies are providing one-time allowances for home office extras like lighting, ergonomic chairs, and standing desks. These allowances typically range from $500 to $1,000.
If you’re thinking about extending remote work options, consider offering a monthly work from home stipend which can include basics such as internet access expenses but can extend to covering perks that office workers get for free at the office – coffee, snacks, team lunches, continuing education, and gym passes. Are your office employees getting treats like massage sessions at the office? Offer a monthly massage allowance to your remote workers as well. Companies are offering between $200-$500 allowance per month for these types of perks.
At Salary.com, we let employees pick their own office equipment and expense it, or they can select from a list of recommended items that the company purchases including desks, chairs, standing desks, and back rests. The company provides all IT equipment including laptops, PCs, headphones and video cameras. Post-pandemic, the company will continue to provide home office equipment to anyone who is working remotely. Our HR team’s goal is to work to understand the needs of each teammate and recognize that, unlike an office, every home situation is different. Offering different support based on each home-work environment allows the company to reimburse items that increase efficiency, while also creating a culture of support for remote workers.
In light of a changing work environment and heightened expectations to be able to work remotely, take a serious look at your reimbursement policy. It should not only cover travel expenses but also ‘work from home’ situations. Talk to managers to determine what employees need to be productive and engaged and develop a remote work reimbursement plan that: includes updated policies, is compliant with federal and state regulations, and considers what equipment your company will provide to remote employees. Think about offering one-time and monthly allowances to make sure your remote workers set up productive work areas and don’t feel left out compared to home office workers when it comes to perks.