Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
We are a small company based in Milwaukee, Wisconsin that allowed some of our employees to work remotely during the pandemic. When we recently announced our plans to call employees back to home base in Milwaukee, we received feedback that some employees did not plan to come back—they want to continue working remotely. We anticipated this, and we’re working with them to navigate their individual situations, but we were surprised to learn that some of our employees have actually relocated to different states!
Fortunately, most of them are still in Wisconsin. However, we have learned that one employee, Wanda Wanderer, moved to Illinois. While we have a Chicago office (and are therefore not concerned with our wage and hour compliance in Illinois or tax implications), Wanda is the first remote employee in that state. We recently saw that Illinois may require that we reimburse Wanda’s personal cell phone, internet, and home office equipment. Wisconsin has no similar requirement—what do we need to know about expense reimbursement for our remote employees in and beyond Illinois?
—Do I Really Have to Pay for That?
Dear Do I Really,
You are correct that several states and localities require the reimbursement of necessary business expenses. The first thing to know about these laws is that no state expressly requires the reimbursement of expenses of purely voluntary remote work. For example, if an employee elects to work from home entirely for their own convenience, and can go into the office at any time, with adequate facilities and equipment there, then it is very likely that the expenses incurred to set up and maintain their home office are not “necessarily incurred” under any state law requirement, including Illinois.
Unfortunately, the line between “voluntary” and “necessary” expenses can be blurry. For example, in Wanda’s case, you may have assumed that Wanda’s remote work is completely voluntary. After all, she is the one who asked to work remotely, and she could move back to Milwaukee or report to your physical office in Chicago. There is more to consider. For example, if Wanda has to work outside of normal working hours, then it may not be reasonable to expect her to report to an office to conduct that work. Additionally, if Wanda does not have dedicated workspace or accessible equipment in either office, she may argue that you did not give her a meaningful voluntary choice to report to an office. Finally, you’ll want to conduct an investigation to determine what, if anything, Wanda has been instructed or directed to do. You’d be surprised how many employers are grappling with employees who were directed by well-intended managers to relocate permanently to a home office. Of course, a direction from management would undermine any argument that Wanda’s remote work is voluntary.
If you determine that Wanda’s remote work was and is not completely voluntary, you will need to determine what expenses you must reimburse.
While the statutes in states requiring reimbursement do not list the types of remote-work expenses that must be reimbursed, two categories of expenses predominate: the cost of cell phone data and other household costs associated with maintaining a home office. For example, California’s Labor Code section 2802 has been interpreted to require that employers pay a “reasonable percentage” of an employee’s cell phone bills when the employee is required to use their personal cell phones for work-related calls, even if the employee does not incur any additional expense beyond what they normally would incur for their own personal use. Similarly, section 2802 has been interpreted to require employers to reimburse for costs associated with maintaining a home office, such as home office equipment or a reasonable percentage of an employee’s internet bill. Some employees in California have even argued that their employers must reimburse them for a percentage of utilities or housing costs, but no court has held these expenses are reimbursable.
Why consider California law when Wanda is in Illinois, you ask? Well, the Illinois expense reimbursement statute is modeled on section 2802 of the California Labor Code. Further, similar to California’s interpretations of its law, the Illinois Department of Labor has clarified that whether expenses must be reimbursed depends on several factors, including whether an employee has an expectation of reimbursement, whether the expense is required to perform the employee’s job duties, whether the employer is receiving a value it would otherwise need to pay for, how long the employer is receiving the benefit, and whether the expense is required of the job. However, Illinois courts have not yet decided whether the Illinois statute requires reimbursement of expenses that would otherwise be incurred regardless of whether such expenses are used for work.
To put it simply, you will be obligated to reimburse any additional expense incurred beyond what Wanda already pays for personal use (if, for example, she upgraded her internet service for her work), and it is not known whether an Illinois court might also require you to reimburse Wanda for a portion of her home internet expenses, her personal cell phone use (unless she is provided a company cell phone for emails and work-related texts), and/or her home office equipment even if she did not incur any additional expense above and beyond her personal use.
To tackle this issue, it would be preferable to have a specific expense reimbursement policy for the states requiring business expense reimbursement that outlines the expenses that may be reimbursed, and the manner in which reimbursements are paid. Some employers choose to provide a work-from-home reimbursement stipend on an employee’s paycheck each month. Note that an expense reimbursement policy or automatic payment may not wholly absolve an employer of any potential liability to an employee for an expense reimbursement. An employer with an expense reimbursement policy that implements its policy by reimbursing its employees more generously than is required under the policy’s written terms may actually bind itself to reimbursements beyond those specified in the policy and may face violations of the state or federal law with respect to calculation of the regular rate of pay for overtime wages. You will also want to consider the tax implications regarding these differing approaches – including that reimbursement pursuant to an accountable reimbursement plan is generally not considered income and is not subject to withholding, whereas an automatic payment may be considered taxable income; consult your tax advisor about any stipend. For all these reasons, be sure to make concerted efforts to determine the correct amount for a stipend reimbursement, evaluate it regularly, and provide an avenue for employees to request additional reimbursement above and beyond the stipend payment.
Finally, you should be mindful that any employee reimbursements owed but not paid to the employee during the course of the employee’s employment must be included in the final compensation owed to an employee at the end of the employee’s employment.
One final tip: Tackle this head on, before Wanda Wanderer wanders again! Remember to get a remote work agreement in place, recognizing only one approved remote work location, and establish a policy that remote workers need permission to change remote locations.