Remote Work Expenses and Employer Reimbursement Requirements
With the pandemic continuing, many offices remain closed and many employees are performing their job duties remotely from home. This had led many employers reasonably to ask, “what types of expenses are we required to pay for?” Unfortunately, the law is very unclear on this issue and there are no bright-line answers for employers. Here is some background, along with some tips for compliance:
What Law Applies?
Employers’ wage and hour obligations generally come from two sources—the federal Fair Labor Standards Act (“FLSA”) and the law of the state(s) where they have employees. Expense reimbursement requirements can vary depending on the law that applies. As such, it is a good idea to review expense reimbursement requirements of all laws applicable to your employees and to comply with the one that is most favorable to the employees.
Interestingly, the FLSA generally does not require an employer to reimburse employees for remote work expenses, unless the amount of those expenses is such that it effectively causes an employee to be paid less than the minimum wage (and/or overtime compensation) for all hours worked. The federal Department of Labor’s COVID-related FLSA guidance explains this.
If you’ve got employees who are paid close to minimum wage, you need to look more closely at the types of business expenses they may be incurring in connection with remote work to assess whether the expenses are of such an amount that the employee effectively is netting less than minimum wage plus any applicable overtime for all hours worked. If so, expense reimbursement will be required.
Of course, for reasons of employee morale and remaining competitive in the employment market, many employers provide reimbursement for certain types of expenses even if they may not technically be required to do so under the FLSA.
California (along with a handful of other states) has a specific law that requires employers to reimburse employees for necessary business expenses that they incur. California’s law is Labor Code section 2802. This statute requires employers to reimburse employees for all expenditures necessarily incurred by the employee in direct discharge of duties for the employer, or in obedience to directions of the employer. Unfortunately, this is not as easy to apply as it may seem. Making matters worse, in 2014, a California court issued a decision in a case called Cochran v. Schwan’s Home Service, Inc., muddying up the standard even more. In the Cochran case, the court addressed expense reimbursement requirements in circumstances where employees are required to use their personal cell phones for work purposes. The court held that if an employee is required to use a personal cell phone for business purposes, the employer must reimburse the employee. This is true even if the business use of the personal phone does not cause the employee to incur expense in excess of their usual, flat monthly rate. Unfortunately, the court did not specify how much an employer is required to pay in expense reimbursement, just that it should be a reasonable percentage of the employee’s bill.
Neither the state Labor Commissioner’s office, nor courts, have provided further clarification for employers on the scope and amount of expense reimbursement that is required under California law. Disappointingly, the Labor Commissioner’s office has failed to issue COVID-specific expense reimbursement guidance for employers with remote workforces due to COVID.
This leaves employers uncertain about the extent of their expense reimbursement obligations related to employees working from home. Rest assured that plaintiffs’ attorneys will file lawsuits against employers, alleging that they did not comply with their expense reimbursement obligations under Labor Code 2802. As such, all employers who are requiring employees to work remotely should think about the types of expenses their remote employees are incurring and issue them a reasonable amount of expense reimbursement to cover those expenses. These expenses may include use of personal phones and other devices, use of home internet/WiFi, use of office supplies, increased electricity costs, and the like. Of course, for most of these things, no employer will be able to determine the precise portion of an employee’s expense that is work-related. As such, employers should decide on a flat monthly amount that they believe reasonably covers the work-related expense associated with working from home. An employer also can limit employee expenses by providing employer-owned equipment (e.g. cell phones, laptops, printers, hotspots) for employees to use at home. Regardless of the monthly amount decided on by the employer, the employer should tell employees what the expense stipend is intended to cover (all home-related work expenses) and include a provision telling employees that if, in any month, they feel that the expense stipend is not sufficient to cover their remote work expenses, the employee should notify HR so that the employee’s expenses can be reviewed and a determination made as to whether additional reimbursement is owed.
Of course, if employees are incurring driving-related expenses, or concrete expenses associated with purchasing items needed to perform their jobs, those expenses should be compensated at the IRS mileage reimbursement rate and/or actual cost, as applicable.
Finally, remember that California’s expense reimbursement law only applies to expenses that are “necessarily” incurred in direct consequence of the job duties or in complying with an employer’s directions. This means that if an employee is incurring expenses that are wholly unnecessary or unreasonably exorbitant, they need not be reimbursed. Employers may want to adopt a policy requiring employees to get advance approval for before purchasing any items to use for their remote work. This will help avoid unreasonable expenditures and a dispute over whether to cover it.
The “necessarily incurred” standard also raises the question of whether employers are required to reimburse remote work expenses where an employee voluntarily chooses (but is not required) to work from home. If an employer has reopened its offices and employees are welcomed to return to the office to perform their jobs, but are permitted to voluntarily choose to continue working remotely, there is a very good argument that the employee’s remote work expenses are not “necessary” and need not be reimbursed, particularly if the employer has notified employees that home office expenses will not be reimbursed in this situation (because employees are free to report to work and not incur any such expenses).
Bottom line: If you have not already done so, evaluate your remote work arrangements and any need to adopt new or revised expense reimbursement policies. If you are late to the game, you can always issue retroactive expense reimbursement for prior months of required remote work by employees.