Illinois Department of Labor Amends its Regulations Governing the State’s Business Expense Reimbursement Law

The Illinois Department of Labor (IDOL) has published amended regulations, effective April 14, 2023, to Illinois’ Wage Payment and Collection Act (IWPCA).1 The amended regulations impact Illinois’ robust expense reimbursement requirements under the IWPCA. One of the most important new regulations from the IDOL now requires employers to maintain their expense reimbursement records for three years. 

Section 9.5 of the IWPCA provides Illinois employees with expansive expense reimbursement protections. Specifically, employees are entitled to reimbursement of “necessary expenditures and losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.”2 The IWPCA defines “necessary expenditures” as all reasonable expenditures required of the employee in the discharge of their employment and expenditures made to the primary benefit of the employer.

The IDOL’s amended regulations now provide the following five-factor test used to determine whether the employee’s expenditure was made to the primary benefit of the employer:

  1. Whether the employee has an expectation of reimbursement;
  2. Whether the expense is required or necessary to perform the employee’s job duties;
  3. Whether the employer is receiving a value that it would otherwise need to pay for;
  4. How long the employer is receiving the benefit; and
  5. Whether the expense is required of the job.

The IDOL specifies that no single factor is dispositive. Instead, this analysis should focus on the extent to which the expense benefits the employer and its business.

Despite this new five-factor test, the amended regulations fail to provide employers with guidance on the definition and scope of whether a business expenditure is “necessary” or “reasonable,” thus leaving Illinois employers with open questions as to how those terms would be interpreted by the agency or how an Illinois court might interpret this law in practice. To date, there have been no substantive court decisions interpreting Section 9.5 of the IWPCA, and the amended regulations do not provide the necessary direction to Illinois employers. For example, the amended regulations do not address whether employers must reimburse a “reasonable percentage” of the actual costs of a personal mobile device that an employee might be required to use for work (as courts in California have held under the California Labor Code).

In addition to the adoption of this five-factor test outlined above, the regulations now require employers to maintain the following records for three years:

  • All policies regarding reimbursement;
  • All employee requests for reimbursement;
  • Documentation showing approval or denial of reimbursement; and
  • Documentation showing actual reimbursement and supporting documents.

These recordkeeping requirements are particularly important for employers as the amended regulations now provide employees the right to file a claim against the employer with the IDOL following a denial of or failure to respond to a request for an expense reimbursement. The claim filed with the IDOL would seek such reimbursement for the “reasonable and necessary” business expense. Records of this kind will benefit employers should they be faced with defending an IDOL claim on this issue.

While having an expense reimbursement policy is preferrable, it does not wholly absolve employers of potential liability to an employee for an expense reimbursement beyond the scope of the company’s policy. 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. This means that employers may bind themselves by practice, not just by nature of the policy in place.

Lastly, employers should be mindful that any employee reimbursements owed but not paid to the employee during the course of the employee’s employment shall be included in the final compensation owed to an employee at the end of the employee’s employment.

Companies with employees in Illinois should immediately review their workplace policies to ensure compliance with the new amended regulations. At a minimum, there should be a written policy that specifies the types of expenses that are “necessary and reasonable expenses” and reimbursable, outlining the company’s record retention policy, and the procedure for timely submitting requests for expense reimbursement.

See Footnotes

1 56 Ill. Adm. Code 300.

2 See 820 ILCS 115/9.5.

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.