Due to the pandemic, employees in the US are working from home in unprecedented numbers. Some, particularly in tech, may be working from home through the end of the year, or even permanently! While working from home raises a myriad of issues (e.g., data privacy and security, health and safety, employee engagement, and more), this post focuses on expense reimbursements related to telecommuting. The trickiest areas are cell phones and internet given that employees are now working from home because they cannot go into the office, as opposed to perhaps at their convenience.
There is no federal requirement to reimburse employees for business-related expenses. However, several states (including California, the District of Columbia, Illinois, Iowa, Massachusetts, Montana and New York) have legislation requiring reimbursement for necessary businesses expenses. For example, California Labor Code Section 2802(a) requires an employer to “indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer….” Failing to reimburse employees can lead to class or collective actions and quickly become incredibly burdensome for employers. Under California law, an employer that does not reimburse employees risks a lawsuit where the damages will include not just the unreimbursed expenses but the attorney’s fees incurred by the employee seeking reimbursement. The employee can also ask the Labor Commissioner to cite the employer or anyone acting on the employer’s behalf under Labor Code Section 2802(d). Where the practice is widespread (or just alleged to be) the claims can be brought on a class-wide basis.
Given this, when crafting a nationwide policy, sometimes it’s simplest to use California as the high water mark.
In California, when employees must use their personal cell phones for work-related calls, employers must pay some reasonable percentage of those phone bills even if employees incurred no extra expenses using their cell phone for work. See Cochran v. Schwan’s Home Serv., Inc. It follows that if employers allow their employees to opt to use their personal cell phone, instead of a company-issued cell phone, that they should be reimbursed a reasonable percentage of their phone bill for work-related calls or other data usage for using texts or the internet for work purposes.
Of course, the courts have not defined what “reasonable percentage” means, but the main options are:
- Reimburse for the actual voice and/or data fees incurred for business purposes, which requires employees to submit expense reports itemizing the costs of calls made for work purposes and the costs of data used for work supported with cell phone bills or other evidence of the costs (this is a time intensive process for employees);
- Reimburse for a percentage of voice and/or data fees that accurately reflects the amount of mandatory business usage, and if a percentage or flat monthly amount is used, then allow employees to seek reimbursement for any additional costs incurred over the percentage or flat amount if the actual costs of business use exceed those amounts (this can be hard to determine given the number of different plans available); or
- Provide employees with a cell phone or another communication alternative for business use.
Given the practical challenges of (1) and (2) above, and the fact that many employees have cell phones that they prefer and the even greater complexity of applying this rubric to home internet use, many employers are looking for a simpler approach. The common practice that is evolving is to provide a flat monthly stipend and inform employees in writing that employees may submit expense reimbursement requests to the extent that the stipend does not otherwise cover their business internet and cell phone usage. Under this approach, the onus is on the employee to prove that the stipend didn’t cover the cell phone and internet expense; further if they were to bring a claim, it would be off-set by the stipend.
Once you understand your obligations, set clear guidelines for your employees. This serves several purposes. 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. Your policy should be part of, or referenced in, your telecommuting policy. Stay tuned for more on that!
For help crafting your expense reimbursement policy, please contact your Baker McKenzie employment lawyer.