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Remote employee reimbursement rules by state

Written by: Chase Charaba
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Originally published on March 23, 2022. Last updated June 3, 2022.

When the COVID-19 pandemic forced some businesses in the United States to move to remote work, most businesses didn’t have a remote work policy or procedures in place. Organizations learned to operate in this new environment almost overnight.

With employees working from home instead of at the office, employees often had to rely on their own equipment and internet instead of using the employer-provided tools they were used to. Many even had to purchase new home office setups, such as desks and chairs.

Soon employees found themselves wondering who should be responsible for the expenses they’d accumulated for remote work. Should employers cover the costs of remote work? Or does that responsibility fall to individual employees?

As of 2022, some employees have sued their employers over unreimbursed remote work costs. According to the Los Angeles Times, these companies include Wells Fargo, Liberty Mutual Insurance, Visa, Oracle, and Bank of America. Amazon has also been added to the mix, with workers in California suing the e-commerce giant for unpaid remote work expenses.

With remote work expense reimbursement becoming an important discussion, some states have enacted laws or extended existing laws for employee reimbursement to include remote work costs.

This article will break down expense reimbursement laws by state and what counts as a necessary cost. We’ll cover the following topics:

Are there any federal requirements for remote work reimbursements?

Federal law doesn’t require employers to reimburse their employees for work expenses. But, the Fair Labor Standards Act (FLSA) does require reimbursement for employees if work expenses cause their earnings to drop below minimum wage.

Similarly, employers are prohibited from requiring their employees to reimburse the organization for using their employer-provided equipment if it reduces their earnings below minimum wage or overtime compensation.

These federal requirements apply to all business expenses. There aren’t any federal guidelines on remote work-specific expenses. However, some states have enacted laws that require organizations to pay their employees for any “necessary” work-related expenses.

What is a necessary expense?

Some states require employers to reimburse employees only for necessary expenditures. The laws around what’s considered necessary are relatively open to interpretation, but state laws generally define necessary as any expense required for the employee to complete their job.

In most cases, if an employee chooses to work remotely, the costs wouldn’t be considered necessary. But, if your entire organization is remote full- or part-time, then those costs would be necessary for your employees to do their jobs.

It’s best to check your state’s laws regarding what’s considered a necessary business expense.

Which states have expense reimbursement laws?

Currently, 11 states, the District of Columbia, and Seattle, Washington have laws about reimbursing employees for necessary work-related expenses. Even fewer states require reimbursement for remote work expenses.

Notably, California and Illinois courts have explicitly stated that remote work expenses fall under their states’ employee expense reimbursement laws. However, there’s still quite a bit of a gray area in other states.

More states are likely to consider adopting remote work and employee reimbursement laws in the future. In some cases, local jurisdictions such as cities and counties may impose their own rules regarding expense reimbursement.

You can use the table below to quickly reference the available state and local laws about remote work employee reimbursement.

Employee reimbursements by state

State Summary Reference

California

Employers must reimburse California employees for all necessary expenses, including those incurred at the employer's direction. Necessary expenses include internet access and phone bills for remote workers.

California Labor Code Section 2802

District of Columbia

Employers must reimburse employees for all necessary tools.

D.C. Municipal Register Title 7 Section 910

Illinois

Employers must reimburse employees for all necessary expenses or losses. This includes reimbursement for internet access and phone bills when used for remote work purposes.

Illinois Wage Payment and Collection Act, Section 9.5: Reimbursement of employee expenses

Iowa

Only authorized expenses by the employer must be reimbursed. Reimbursements must be paid out within 30 days.

Iowa Code 2022, Section 91A.3

Massachusetts

Enforces the same protections as federal law: expenses may not reduce an employee’s wage below minimum wage.

Massachusetts General Laws Part I, Title XXI, Chapter 149, Section 148

Minnesota

Employers must reimburse employees for uniforms, purchased or rented equipment, or consumable supplies upon their termination of employment.

Minnesota Statute 177.24

Montana

Employers must reimburse all necessary expenses, including those incurred by the employer's direction.

Montana Code 39-2-701

New Hampshire

Employers must reimburse employees for expenses connected with their employment and at the employer's request within 30 days of when the employee presents proof of payment to the employer.

New Hampshire Revised Statutes Title 23 Section 275:57

New York

Employers must provide reimbursements to employees for expenses if there’s an agreement, such as an employment contract, that outlines expense reimbursement.

New York Labor Law Section 198-C

North Dakota

Employers must reimburse employees for business expenses related to necessary duties or at the employer’s direction.

North Dakota Century Code Section 34-02-01

South Dakota

Employers must reimburse all necessary expenses, including those incurred by the employer's direction.

South Dakota Statute Codified Law 60-2-1

Washington

Employee reimbursements are at the employer’s discretion. Unreimbursed employee expenses may be tax-deductible.

Seattle: Employers must pay employees all compensation owed to them, including any business expenses.

Washington State Department of Labor & Industries

Seattle Wage Theft Law

Do employers need to have an expense reimbursement policy?

One of the best ways to handle remote work expense reimbursements is to create a written policy for your organization that outlines what reimbursable expenses are for your employees. You’ll want to incorporate anything you’re legally required to reimburse employees for.

While expense reimbursement policies aren’t required, they can help you stay consistent in what’s being reimbursed and allow your employees to know what’s reimbursable beforehand.

Even if your organization is in a state where remote work reimbursements aren’t required, it’s still a good idea to have an expense reimbursement policy in place so that employees know the policy ahead of time.

If you have employees working remotely in different states, you can outline the differences in how you’ll reimburse their work from home expenses. You might also want to consider offering a remote work reimbursement to all of your employees, whether it’s legally required or not. This can be a valuable employee perk to help attract and retain employees in the tight labor market.

Offering remote work stipends

Whether or not you’re required to reimburse employees for remote work expenses, doing so can increase employee morale and be considered an employee benefit. When looking to retain your remote workers and hire new remote talent, offering a remote work stipend to your employees can help you compete with organizations that don’t provide a remote work benefit.

With a remote work stipend, you can offer your employees a monthly allowance for their home office costs. This can include phone and internet bills and home office setup costs.

It works like this: you set up a monthly benefit allowance for your employees. You can either give all employees the same allowance or give certain employee classes (such as full-time) or employees in certain states a larger allowance. You can also choose to only offer the benefit to employees in certain states or classes.

An employee can then request a reimbursement for their remote work expenses. You’ll simply approve these amounts up to their eligible allowance. Typically, you’ll reimburse your employees on their next paycheck.

Because remote work employee stipends are taxable income, they have to be reported on their W-2s.

Employee stipends allow your remote workers to cover their employee expenses quickly and flexibly, all while satisfying state requirements for remote work expenses.

Conclusion

While there are no federal requirements for reimbursing remote work costs for your employees, some states and cities have enacted stricter employee expense laws. It’s best to have a written employee expense reimbursement policy in your employee handbook to ensure your organization has an action plan for remote workers.

Offering a remote work stipend is a great way to meet state reimbursement requirements while providing your employees with a quality benefit.

With WorkPerks by PeopleKeep, you can create a quality remote employee benefits package that works for everyone. With easy-to-use dashboards and award-winning customer support, you can set up a remote work reimbursement benefit in minutes.

Schedule a call with a personalized benefits advisor today to see how employee benefits can work with your organization

Originally published on March 23, 2022. Last updated June 3, 2022.
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