Employers in the US are more than a little fearful of COVID-19 related class and collective action lawsuits coming their way, and with good reason. Since shelter-in-place orders were imposed in March, US employers have faced class action lawsuits for a variety of COVID-19 related reasons, including the alleged failure to implement proper workplace safety measures or provide appropriate paid sick leave. To keep workers safe from contracting the virus at work, many employers have allowed employees to continue to work from home indefinitely, which likely decreases the odds that an employer will be sued in class action litigation for failing to provide appropriate PPE in the workplace. However, managing employees working from home can create other issues worthy of class-action litigation, including reimbursing those employees for work-related expenses.
What can employers do to ensure they meet reimbursement requirements to steer clear of expense reimbursement class action lawsuits in the US? Go through the four considerations, below.
1. Know the rules that apply in your jurisdiction
Several jurisdictions have specific rules regarding employee expense reimbursements, so you’ll need to check your local law. 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. Similarly, 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,” unless the employer has a written reimbursement expense policy and the employee fails to comply with that policy. 820 ILCS 115/9.5. And 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. If you have operations in several jurisdictions, make sure that you know and follow each applicable jurisdiction’s rules.
In addition, the Fair Labor Standards Act (FLSA) may apply. Though the FLSA does not require employers to reimburse their employees, under the FLSA “kickback” rule, employees cannot be required to directly pay business-related expenses or reimburse their employer for such expenses if doing so would cause the employee’s wage rate to fall below the required minimum wage or overtime compensation thresholds. See 29 C.F.R. § 531.35. Remote workers typically earn well-above the federal minimum wage ($7.25 per hour), so employers don’t need to be as concerned about business expenses causing those employees’ wages to dip below the federal minimum wage. However, employers should be on the lookout for these situations, which require more attention:
- Where employees are subject to overtime for working more than 40 hours in a workweek;
- Where a particular pay threshold (whether under federal or state law) must be met for the employee to meet an exemption from overtime (in which case the employee will become nonexempt and must be paid overtime for any work over 40 hours in a workweek); or
- Where state or local minimum wages are higher (such as Chicago’s $14 per hour or California’s $12 per hour), making it more likely that an employee’s payment of business-related expenses would cause their wages to dip below the minimum wage.
A violation of the FLSA occurs in any workweek in which the cost of the business-related expenses borne by the employee cuts into the minimum or overtime wages required to be paid to the employee. Therefore, employers can more easily run afoul of the FLSA in these scenarios, especially if the business-related expenses paid in any given workweek happen to be hefty.
2. Avoid pitfalls related to reimbursement timing
When you look at the laws applicable to your jurisdiction, check specifics on when your employees must be reimbursed. Even if you have good intentions, missing those reimbursement deadlines could cost you. Though California and Illinois are silent on when reimbursement must be made, other jurisdictions are not. For instance, though Pennsylvania doesn’t mandate expense reimbursements, if an employer has an agreement or policy that requires expense reimbursements to employees, those 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. Iowa requires employers to reimburse employees for expenses within 30 days after the employee submits an expense claim or provide a written justification within the same time period for refusing the reimbursement. Iowa Code § 91A.3(6). And New Hampshire also requires employers to reimburse employees for reimbursable expenses (those not normally borne by the employee as a precondition of employment) within 30 days after the employee submits an expense claim. N.H. Rev. Stat. Ann. § 275:57.
3. Determine what costs should be reimbursed
Knowing what costs you are required to reimburse, and communicating that to your employees, will go a long way toward ensuring that you don’t end up wrongly refusing reimbursement for a reimbursable expense. However, the determination can be difficult. Though some expenses will clearly be ones that should be reimbursed, others may be questionable, and it may vary by jurisdiction.
Generally, an employer must provide employees with equipment and resources necessary for employees to perform their jobs, without passing on the employer’s operating costs to employees. But only “necessary” expenses incurred by employees must be reimbursed, not optional expenses. If an employer requires an employee to work from home and an employee needs a laptop to do so, the employer must reimburse the employee for the cost of the laptop if the employer doesn’t provide one. However, if the employee chooses to purchase an additional monitor along with the laptop for the employee’s own convenience, or an upgraded laptop not otherwise necessary for the employee’s work duties, the monitor is not “necessary” and is not likely reimbursable, and neither is the difference between the standard laptop and the upgraded one. The same goes for a wireless mouse (if a corded one will work) or a newer cell phone. These items are not likely required to be reimbursed by employers, unless they are required for the employee to work.
Unfortunately, not every reimbursable expense is top of mind for employers, especially those who had little experience with a remote workforce before the pandemic. Some common reimbursable items for remote work situations could include reimbursement for the purchase of (or the cost of a portion of):
- Personal cell phone and voice/data plan
- Home internet
- Personal computer or tablet
- Fax machines
- Teleconferencing software or hardware
- Electronic supplies (such as a mouse, a headset, and additional cables)
Be careful: employers may have to reimburse employees for items that incurred no additional expense to the employee if the employer is requiring the employee to use the item for work. For instance, employees may already have cell phone bills they pay each month for their personal cell phones, or laptops they use for personal emails and video meetings with friends. If they must use a laptop or cell phone for work and these items were not provided by the employer, the employer may be legally obligated to compensate the employees for the use of their personal property.
Determining how much to reimburse in these situations can be almost impossible. For instance, in California, when an employee must use a personal cell phone for work, the employer must reimburse a “reasonable percentage” of cell phone bills. What “reasonable percentage” means has not been defined, leaving employers with a few options. “Reasonable percentage” could mean the actual costs incurred for business purposes, which would require, for instance, that employees figure out how much time they spent on the phone for work as compared to personal calls and provide a percentage to the employer. It could mean an employer provides a flat monthly reimbursement amount reflecting the estimated percentage to be utilized for business purposes, and permitting the employee to seek reimbursement for any additional costs, but estimating the percentage of use of a cell phone for business purposes could be difficult and could vary depending on the industry and time of year.
Instead, some employers are providing a monthly stipend to employees and communicating in writing that employees can submit requests for reimbursement if the stipend doesn’t cover their business expenses. In comparison with reviewing each employee’s supporting documents to prove a reasonable percentage every month, this method will likely be less of an administrative nightmare–even if several employees do seek reimbursement of additional costs. In addition, by putting the onus on employees to submit a request for reimbursement for any amounts above the stipend, employers are throwing a possible wrench in a putative class’s typicality argument, because each employee’s request for any additional reimbursement will have to be evaluated on an individual basis. However, employers should not use this option if employee wages are close to the threshold for FLSA purposes. As soon as employee wages dip below the applicable threshold, the damage is done, and employers can be liable for violation of the “kickback” rule.
4. Update your reimbursement policy to address working
from home, and communicate it
If your reimbursement policy does not yet address working from home, update it, and then communicate it. Before setting the terms of the policy, make sure any employer obligations in the policy, including when and how reimbursements will be paid, are manageable in terms of administration. One quick way to a lawsuit is to set employee expectations higher than your follow-through. When revising the policy, be sure to:
- Define the reimbursable expenses necessary for performing remote workers’ job duties, and those expenses that are not required for remote workers’ job duties. This does not mean you won’t have to reimburse for any other necessary expenses, but it does provide guidance for employees so they have an understanding (and reasonable expectations) of the difference between those items necessary for their jobs and those that aren’t. In addition, the policy will guide supervisors and managers, who are often in charge of initially approving reimbursements.
- Explain the process for employees to submit necessary expenses for reimbursement, including those expenses necessary for the performance of remote workers’ job duties even if those expenses are not otherwise listed in the policy.
- Provide a date by which reimbursable expenses and any required documentation or certification must be submitted. Not every jurisdiction (including California) requires a specific number of days by which employee expenses must be submitted, but giving employees a deadline will make it easier for you to track reimbursements for cost purposes (for instance, to see whether it would be more cost effective for the company to purchase and provide the equipment); for tax purposes; and, more importantly, to be assured that you are properly reimbursing employees to avoid a class action or other lawsuit.
- As a final step, provide the policy to employees and managers, and ask them to sign a statement acknowledging they’ve read it. And be sure to train your managers, supervisors, and HR on the policy. They will likely be the front line in handling employee reimbursement requests, and they should know any legal requirements in applicable jurisdictions, as well as how to handle employee claims for expenses.
More employees are working remotely now than ever before and may be incurring reimbursable expenses. Employers who get expense reimbursements wrong may end up having to compensate workers for unreimbursed expenses, plus interest, penalties, and attorneys’ fees. Employers should take proactive steps and revise policies on employee reimbursements now to avoid class action litigation down the line. For guidance on your employee expense reimbursements, contact your Baker McKenzie employment attorney.