A Legal Overview of Work From Home Reimbursement
The world is a different place today than it was a month ago – or even a week ago. As businesses and individuals try to ascertain what the new normal will look like, one thing is clear: the workplace as we’ve known it is transforming. Working from home – once a perk – is now a mandate for millions of Americans. This has raised all kinds of new needs and questions for employers of all sectors. What tasks can employees do from home? Do we have the technology to support them? How can we help our employees feel connected and healthy from home?
In my role leading the legal function at Motus, I have turned to several of the nationwide General Counsel listservs to share and learn from others as we all navigate this changing landscape in real time. One question that has come up many times with these legal leaders is this:
Working from home (“WFH”) has shifted from being an option to a requirement. 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.?
While I may not have answers to many of the “new-normal” questions we’re facing, as CLO of a business that calculates business reimbursements for mixed-use assets, I can shed some light on factors businesses should consider for WFH.
Should I 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, Massachusetts, 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.
- Even if employees have “unlimited” phone or internet plans, yes. Courts reviewing this issue find that just because an employee’s expenses do not increase from business use, 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 recent Tax Cuts and Jobs Act tax reform, which eliminated the deduction for unreimbursed job expenses. Your employees who previously could have deducted many of the new costs they’re experiencing now have no way to be made whole without a reimbursement.
I’ve heard of companies implementing a flat WFH allowance for all employees. 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, the added cost of it being a Porsche need not be attributable to the business.
- Regardless of what you decide to pay, it is advisable to have a mechanism for employees to submit substantiated expenditures that exceed the reimbursement amount.
Is a Work From Home 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 WFH 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 all 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. (E.g., for every $100 of taxable stipend, $38 is lost to taxes employee and employer.) As more employees become remote, this inefficiency only multiplies.
- 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 reasonably related to needs of the business and was reasonably calculated not to exceed the expenses the employee actually incurred.
Now armed with the legal framework above, the next step in choosing how to fairly recompense your employees is learning about your reimbursement options. Motus is pleased to provide an offering that can help your company navigate these new workplace needs.
On a personal note, I am incredibly grateful for the sharing of information, care and unity we are all witnessing during this crisis. We at Motus believe it’s critical to support our employees through this unknown time, and to empower each member of the Motus family to do their part for the health and strength of our broader community. We hope the information in this post helps you and your workforce adapt and thrive.