Navigating Expense Reimbursement for “Work From Home” Employees

March 30, 2020

To curb the rapid spread of COVID-19, over half of U.S. states and numerous local governments have adopted shelter-in-place orders, most of which require residents to remain at home, except to provide or receive essential services. Many other state and local governments are expected to follow suit. This has created an unprecedented population of employees working remotely from home so their employers’ business operations can continue in whole or in part. However, in a number of jurisdictions, employers must be aware of potential legal obligations to reimburse these employees for their expenses incurred by working in this remote capacity.

Employees may be incurring necessary expenses for tools and equipment incidental to their working remotely, such as personal cell phone and computer usage, high-speed internet access, use of telecommunications and timekeeping applications, printer consumables like ink or toner cartridges and paper, and day-to-day office supplies and related equipment that are typically provided by the employer and used by the employee when not working remotely (i.e., pens, pads, paperclips and staples). For instance, an employee working from home who uses his or her personal cell phone to make and receive work-related calls, or personal printer paper and ink for business-related correspondence, may need to be separately reimbursed for these types of expenses, depending on the jurisdiction. 

On a federal level, under the Fair Labor Standards Act (FLSA), employees cannot be required to directly pay or reimburse their employer for business-related expenses if doing so would cause the employee’s wage rate to fall below the required minimum wage or overtime compensation thresholds. Since many states have no employee business expense reimbursement laws, this baseline protection under the FLSA will apply. 

Minnesota follows this minimum wage protection approach under its state law, but also requires that employers reimburse all business expenses incurred by employees (which include “equipment” and “consumable supplies” used in employment) upon termination. Similarly, Massachusetts law does not expressly require “work from home” expenses to be reimbursed, but does prohibit an employer from shifting its business costs to its employees and thereby causing their wage rate to fall below the basic minimum wage. 

A number of other states have enacted statutes that require reimbursement of employees’ necessary business expenses:

  • In California, an employer must reimburse an employee for all “necessary expenditures or losses incurred by the employee in direct consequence or discharge of his or her duties.” Cal. Lab. Code § 2802. An employee bringing a successful claim for failure to reimburse expenses under this statute is entitled to recover their attorneys’ fees. Civil penalties can be assessed against the employer as well.
  • Illinois requires reimbursement of all “necessary expenditures or losses” an employee incurs within the scope of employment that are “directly related to services performed for the employer.” 820 Ill. Comp. Stat. Ann. 115/9.5. 
  • Pennsylvania does not mandate expense reimbursements, but if an employer has an agreement or policy the requires expense reimbursements to employees, such reimbursements are considered “fringe benefits or wage supplements” and must be paid to the employee within 10 or 60 days after a claim, depending on the circumstance.  43 Pa. Stat. Ann. § 260.3.
  • In the District of Columbia, employers must pay the cost of purchasing and maintaining any tools that the employer requires to perform the employer’s business.  D.C. Mun. Reg. tit. 7, § 910.1.
  • Montana law requires that employers pay for any business expenses that an employee pays as a direct consequence of their duties and responsibilities as an employee, or as a result of the directions of their employer. Mont. Code Ann. § 39-2-701.
  • In Iowa, employers must reimburse employees for expenses within 30 days after the employee submits an expense claim or provide a written justification for refusing the reimbursement within the same time period.  Iowa Code § 91A.3(6).
  • New Hampshire law requires employers to reimburse employees for expenses within 30 days after the employee submits an expense claim, except expenses normally borne by the employee as a precondition of employment.  N.H. Rev. Stat. Ann. § 275:57.

Given the sudden and rapid expansion of the remote employee workforce, and the patchwork of expense reimbursement requirements under state and federal law, employers should speak with legal counsel to develop and/or revise their expense reimbursement policies to ensure compliance with all state laws where their employees may be working remotely. Such practices could include providing employees with a reasonable periodic stipend to reimburse all of their anticipated reasonable business expenses related to remote work, with the ability to request additional reimbursement amounts if the stipend is insufficient. Or an employer may permit employees to request reimbursement of reasonable and necessary business-related expenses along with substantiating documentation. The employer may also require that advance approval by a manager or supervisor is required before employees incur certain types of expenses and/or those over a threshold dollar amount.

If you have questions regarding expense reimbursement for remote work or would like assistance developing or revising an employee expense reimbursement policy, please contact any of the McGuireWoods team members listed below, or any other member in the Labor & Employment Group

McGuireWoods has established a COVID-19 Response Team to help clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic. Lawyers in the firm’s 21 offices are ready to assist quickly on questions involving healthcare, labor and employment, education, real estate and more. For assistance, contact a team member or email [email protected].