FAQs: Expense Reimbursement Amidst the New Work-From-Home Normal

Alerts / August 24, 2020

In Mid-March, much of the nation’s workforce began working from home due to the COVID-19 pandemic. As a result, many employers had to rapidly adjust to utilizing a virtual workforce. With this unprecedented shift in working habits, employers may be overlooking business-related expenses being incurred by their employees. For example, employees may now (and for the foreseeable future) be incurring expenses related to printer paper, pencils, pens, cell phone expenses, home internet bills, etc.

These are not typical expenses that employers would reimburse. However, because of the “new normal” of working from home, employers must vigilantly analyze the types of expenses their employees are incurring for business-related purposes and provide reimbursement accordingly.

Employers should also reassess their employee reimbursement policies in order to ensure they remain compliant. 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. Accordingly, we offer the following guidance:

Q: Where does an employer’s obligation to reimburse employees working from home come from?

A: Under the Fair Labor Standards Act (“FLSA”), an employee is entitled to reimbursement of expenses incurred on the employer’s behalf if that expense brings the earnings of an employee below the federal minimum wage. Several states have also enacted their own expense reimbursement laws that either meet or exceed the standard set forth in the FLSA.

Q: Which states have employee expense reimbursement type laws separate from the FLSA?

A: Alaska, California, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Montana, New Hampshire, New York, North Dakota, Pennsylvania, South Dakota, and Washington, DC all have enacted statutes which bear on expense reimbursement. Some states (like California, Illinois, and Montana) have more robust reimbursement laws in that employers are required to reimburse employees for all “necessary expenditures or losses” or “business expenses” incurred by the employee in direct consequence or discharge of his or her duties. (Cal. Lab. Code. Section 2802; 820 Ill. Comp. Stat. Ann. 115,9.5; Mont. Code. Ann. Section 39-2-701(1)). Other states (like Alaska and Arkansas) require reimbursement only if equipment purchased by employees for work-related purposes “cannot be used during normal social activities of the employee” or if the purchase/expense would bring the employees compensation “below minimum wage.” (8 Alaska Admin Code Section 15.165; Code of Arkansas Rules and Regs., 010-14-107(B).)

Q: Does an employer have to reimburse an employee that is not required to work from home but chooses to do so?

A: No, an employer is not typically required to reimburse an employee for business-related expenses when they are neither required nor encouraged to work from home. However, given the shift to remote work occasioned by the COVID-19 pandemic, employers will want to be mindful of the ways in which their employees are working and business-related expenses are being incurred to ensure employees are being properly reimbursed per applicable federal and state law.

Q: What types of expenses should employers be reimbursing that they might not have before COVID-19?

A: With employees having historically worked in an office environment, many of the supplies and resources they utilized to complete their job duties were provided for by the employer (i.e., printer paper, pens/pencils, computers, electricity, computer monitors, internet, phones, etc.) Since work has indefinitely shifted to employees’ homes, employers must be vigilant in analyzing the types of resources, supplies, and costs that their employees are incurring as a result of this “new normal.” Employers should consider reimbursing costs such as a reasonable percentage of use for things like home electricity, personal cell phones, printer paper, pens/pencils, etc. – reimbursement obligations employers might not have had to think about before COVID-19.

Q: What constitutes a reasonable reimbursement amount?

A: An employer is likely not responsible for the entire personal cell phone bill of an employee simply because that employee uses his/her personal cell phone for work purposes. Rather, an employer should assess on a case-by-case basis the expenses incurred by an employee and make a reasonable determination as to what the proper level of reimbursement is for the expense claimed. It should be noted that what constitutes “reasonable” is a fact specific exercise and that employers should approach each employee reimbursement request as such. What may be reasonable in one instance might not be in another. An employer will want to maintain records as to reimbursements made to employees and the rationale behind those reimbursement amounts.

Q: Can an employer pay a flat sum per month to employees for reimbursement of business-related expenses?

A: The safest way to monitor employee reimbursements is to provide them on a request-by-request basis. However, there are some costs that employers know employees will incur on a monthly basis and so it may make sense to provide a reimbursement on a more periodic basis.

If an employer knows that an employee will regularly incur a certain business-related/work-related expense, it can choose to increase that employee’s salary to cover the costs of those expenses. This can be tricky, however, as the employer must be sure to document/identify the amount of compensation attributable to the expense actually incurred. If providing employees reimbursements on a periodic basis, an employer should perform an analysis to ascertain an amount of reimbursement that is adequate to cover the actual expense incurred by the employee.

This approach is likely effective for employers in dealing with cell phone reimbursements as an employee’s cell phone bill is usually a fixed cost. Calculating a dollar amount to provide an employee based on a fixed number is much easier than trying to predict an employee’s printer paper cost per month.

Q: Can an employer require employees to submit reimbursement requests within a certain timeframe?

A: Employers should have a written reimbursement policy that requires employees to submit reimbursement requests by a certain deadline after the expense is incurred. This will help combat employees sitting on reimbursement requests for months or years, but ultimately the deadline to submit a reimbursement request will depend on state specific laws where they exist. For example, California allows an employee up to three years to submit a reimbursement request.

Q: The employee never told us about the expense, am I still required to provide a reimbursement?

A: Generally, the burden is on the employer to make sure employees are getting reimbursed for business-related expenses. For example, if an employee incurs a business expense in a state governed by the FLSA (or a state with reimbursement laws mirroring the FLSA rule), it is the employer’s burden to determine whether that expense brings the employee’s compensation below minimum wage, and if so, to reimburse that employee accordingly.

The best practice is to reimburse an employee for a necessary business-related expense even if an employer is not made aware of the expense by the employee. Not doing so could subject an employer to potential liability.

Q: What should I be doing as an employer with regard to employee expense reimbursement amidst the COVID-19 pandemic?

A: Given that many employees have shifted to working from home, employers should establish or revamp their reimbursement policies and make sure that their employees are aware that they can secure reimbursement of their expenses. Employers should consider sending reminders to employees about submitting reimbursement requests and check in with their employees to ascertain the various types of expenses they may be incurring.

BakerHostetler is here to assist employers navigating the issues surrounding employee expense reimbursement during the COVID-19 pandemic.

Authorship Credit: Carter Norfleet and Shareef Farag

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