A Legal Overview of Work From Home Reimbursement
The world is a different place today than it was a several years ago. The workplace we knew it gained a broader definition. Working from home – once a perk –became a mandate for millions of Americans. This raised new needs and questions for employers of all sectors: what can employees do from home? Do they have the technology to support that work?
In my role leading the legal function at Motus, I turned to several of the nationwide General Counsel listservs to share and learn from others as we navigated the changing landscape in real time. In this post, I’ll share popular question coming from and answered by legal leaders.
Employers Accounting for Employee Costs
The biggest question, the question that came up time and time again was: “How must employers account for the costs that employees are incurring to do their jobs from home? Should employees be reimbursed for phone, internet, office set up, etc.?”
As the legal leader of a business that calculates business reimbursements for mixed-use assets, I can shed some light on factors businesses should consider for remote workers. Here’s a breakdown of some scenarios in which a company should reimburse employees for business use of personal assets:
- If they earn at-or-close-to the minimum wage, yes. The federal Fair Labor Standards Act requires that employees earn at least the minimum wage net of any necessary business expenses they incur to do their jobs.
- If they live in California, Illinois, Iowa, Montana, or D.C., yes. These states require employers to reimburse their employees for all necessary business-related expenses, regardless of the employee’s wage. Certain municipalities, like Seattle, may also require reimbursement.
- Even if employees have “unlimited” phone or internet plans, yes. Courts reviewing this issue have found that just because an employee’s expenses do not increase from business use, they are still entitled to reimbursement—their employer may not be “unjustly enriched” as a result.
- It’s also worth noting that a Work From Home reimbursement is especially meaningful after the 2016 Tax Cuts and Jobs Act tax reform, which eliminated the deduction for unreimbursed job expenses. Employees who previously could have deducted many of the remote work costs they’re experiencing now have no way to be made whole without a reimbursement.
Methodology for Reimbursing
A couple years ago, some companies implemented a flat remote work allowance for all employees. This had other companies asking “should I reimburse the same amount they’re reimbursing? And should I reimburse all of my employees the same thing?”
- Not necessarily. Depending on the nature of someone’s job, where they live and the type of home set-up they require, costs can vary widely. That’s both between businesses and within each company’s employee base. Allocating the same amount to these employees results in “winners and losers.”
- A fair and accurate reimbursement should account for a number of factors, which can vary
- Phones: device costs, carrier costs, taxes, insurance
- Internet: speed package, modem fee
- Home Office: regional living costs
- Reimbursements should be for business expenses that are “reasonable” and “necessary.” So, by way of analogy, if you reimburse someone who drives their personally-owned Porsche for business, but their job simply requires them to get from point A to point B, you do not need to attribute the added cost of Porche ownership to the business.
- Regardless of what you decide to pay, it is advisable—and in some locales, required—that you have a mechanism for employees to submit substantiated expenditures that exceed the amount you reimbursed.
Remote Work Stipend Taxability
Companies continue to provide employees working remotely with stipends. One of the questions we continue to see is: “Is a Remote Work reimbursement taxable to me and/or my employee?”
- While the basic distinction is that reimbursements are un-taxed and compensation is taxed, in practice things are more complicated. A one-size-fits-all remote work stipend for all employees – even if intended to reimburse for business expenses – is likely taxable. That is unless the business adds the complication of collecting receipts from employees or otherwise substantiating the reimbursement.
- If you’re tempted to avoid the substantiation complexity by simply allowing the stipend to be taxed as compensation, you and your employees stand to lose a meaningful amount. In one example, every $100 of taxable stipend costs $38 in employee and employer taxes. Receiving $62 instead of $100 is meaningful to employees, and the more remote employees you have, the more this inefficiency multiplies for both employer and employee.
- To support a tax-free reimbursement program, employers should leverage data that accounts for each individual’s regionally-specific costs. For mobile phone and internet, for example, an employer must be able to show that the reimbursement needs
Using the legal framework above, your company is ready to take the next step in choosing how to fairly recompense your employees. That next step is exploring your reimbursement options. Motus provides a Bring Your Own (BYO) solution that enables your company navigate remote worker needs. This solution isn’t just for our customers: we at Motus use BYO to reimburse our employees fairly and accurately for their business use of personal assets. Learn more about our BYO solution today!
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