Remote employee reimbursement rules by state
Video • January 24, 2024 at 9:23 AM • Written by: Chase Charaba
When the COVID-19 pandemic forced some businesses in the United States to move to remote work, many organizations didn’t have a remote work policy or procedures in place. Organizations learned to operate in this new environment almost overnight.
Employees working from home instead of at the office often had to rely on their own equipment and internet instead of using the employer-provided tools they were used to. Many even purchased new home office setups, including desks and chairs.
Soon, employees wondered who should be responsible for the expenses they’d accumulated for remote work. With so many employees working remotely, employers also began to wonder if they should reimburse their employees.
Some states and local governments 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.
Takeaways from this blog post:
- Several companies, including Wells Fargo, Liberty Mutual Insurance, Visa, Oracle, and Bank of America, have been sued by employees for unpaid remote work expenses.
- While federal law doesn’t require employers to reimburse employees for work expenses, the Fair Labor Standards Act does require reimbursement if it causes an employee's earnings to fall below the federal minimum wage.
- Some states, such as California and Illinois, have explicitly stated that remote work expenses fall under their employee expense reimbursement laws, while many other states have a more ambiguous stance.
Why is it important to know the rules surrounding remote employee reimbursement?
First, let's discuss why employers need to know remote work reimbursement laws. In 2021 and 2022, some employees sued their employers over unreimbursed remote work costs. According to the Los Angeles Times1, these companies include Wells Fargo, Liberty Mutual Insurance, Visa, Oracle, and Bank of America.
Workers in California sued e-commerce giant Amazon for unpaid remote work expenses in 2022 and 20232.
Understanding the state and local rules surrounding remote employee reimbursement can help your business avoid lawsuits by employees or former employees.
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 Act3 (FLSA) requires employers to reimburse employees for work expenses if those expenses cause an employee's earnings to fall below the federal minimum wage. This is $7.25 per hour for hourly employees and $684 per week for salaried employees.
Similarly, the law prohibits employers from requiring employees to reimburse the organization for using their employer-provided equipment if it reduces their earnings below minimum wage or overtime compensation.
The Americans with Disabilities Act (ADA) can also affect whether or not you must reimburse an employee. For example, if you have an employee who works from home as a reasonable accommodation under the law, you may need to reimburse them for their remote work expenses.
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 requiring organizations to pay 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, the costs wouldn't be considered necessary if an employee chooses to work remotely. But, if your entire organization is remote full- or part-time, those costs would be necessary for your employees to do their jobs.
It's best to check your state's laws regarding what it considers 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 or business use of a personal cell phone.
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 business-related expense reimbursement.
You can use the table below to quickly reference state and local laws about remote work employee reimbursement.
Employee expense reimbursement laws by state
| State | Summary | Reference |
|
Employers must reimburse California employees for “all necessary expenditures or losses”, including those they incurred at the employer's direction. Necessary expenses include internet access and phone bills for remote workers. According to state law, necessary expenditures include all reasonable costs. California courts have interpreted the law to include a reasonable percentage of remote employees' monthly internet costs or cell phone bills. |
California Labor Code Section 2802 4 |
|
|
District of Columbia |
Employers must reimburse employees for the cost of purchasing and maintaining all necessary tools related to their scope of employment. |
D.C. Municipal Register Title 7 Section 910 5 Notice of Final Rulemaking, 41 DCR 187 |
|
Illinois |
Employers must reimburse employees for all necessary expenses or losses. This includes reimbursement for internet access and phone bills when employees use them for remote work purposes. Employers can specify what they’ll pay for each type of expense. Employees must also submit requests for reimbursement within 30 days of incurring the eligible expense. |
Illinois Wage Payment and Collection Act, Section 9.5: Reimbursement of employee expenses 6 |
|
Iowa |
Employees only need to reimburse expenses they authorize. They must pay out reimbursements within 30 days. If an employer doesn’t pay the reimbursement request, they must provide a written notice explaining why within 30 calendar days. |
Iowa Code 2022, Section 91A.3 7 |
|
Massachusetts |
Enforces the same protections as federal law: expenses may not reduce an employee's wage below the current state minimum wage. This is $14/hour in 2024. While not required, the Massachusetts Attorney General’s Office recommends reimbursing employees for all expenses that are unavoidable and necessary. |
Massachusetts General Laws Part I, Title XXI, Chapter 149, Section 148 8 |
|
Employers must reimburse employees for any expenses listed in subdivision 4 of the law, which includes uniforms, purchased or rented equipment, travel expenses for employment (except for commuting), or consumable supplies, upon their termination of employment. After reimbursing employees, employers can require them to return any items. |
Minnesota Statute 177.24 9 |
|
|
Montana |
Employers must reimburse all necessary expenses, including those they incurred at the employer's direction or during the discharge of their normal job duties. Because of the broad language of the law, this may include remote work costs such as internet access costs and cell phone bills. |
Montana Code 39-2-701 10 |
|
Employers must reimburse employees for expenses connected with their employment and made 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 11 |
|
|
Employers must provide reimbursements to employees for expenses if there's an agreement, such as an employment contract, that outlines expense reimbursement. The state considers failing to abide by reimbursement agreements as a misdemeanor. |
New York Labor Law Section 198-C 12 |
|
|
North Dakota |
Employers must reimburse employees for business expenses related to necessary duties or at the employer's direction. Because of the broad language of the law, this may include remote work costs. |
North Dakota Century Code Section 34-02-01 13 |
|
According to the Pennsylvania Personal Income Tax law, employees can claim any unreimbursed expenses as deductions on their tax returns. |
43 Pa.Stat. § 260.3 |
|
|
South Dakota |
Employers must reimburse all necessary expenses, including those incurred by the employer's direction. |
South Dakota Statute Codified Law 60-2-1 14 |
|
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. This can include any remote work-related expenses. |
Washington State Department of Labor & Industries 15 Seattle Wage Theft Law 16 |
Do employers need 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 in your expense policy. You might also want to consider offering a remote work reimbursement to all your employees, whether 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 fringe benefits like a remote work stipend to your employees can help you compete with organizations that don't provide a remote work benefit.
According to a 2022 Reuters article17, several clients of Ackermann & Tilajef settled cases with their employers over unreimbursed remote work expenses. Many of these organizations agreed to give remote workers a monthly stipend of up to $83.
With a remote work stipend, you can offer your employees a monthly, quarterly, or annual allowance for their home office costs. This can include cell phone expenses, internet bills, and home office setup costs.
It works like this: you set up a benefit allowance for your employees on the schedule that works best for your organization. You can 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 make reimbursement payments to your employees on their next paycheck.
Because remote work employee stipends are taxable income, you must report them on their W-2s for their income taxes.
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. Having a written employee expense reimbursement policy in your employee handbook is best 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 PeopleKeep’s WorkPerks employee stipend administration platform, you can create a quality remote employee benefits package that works for everyone. With the ability to set custom allowances and offer perks for other expense categories, such as health and wellness, you can offer a benefit your employees love in minutes.
This blog article was originally published on March 23, 2022. It was last updated on January 24, 2024.
2. https://www.linkedin.com/news/story/amazon-sued-over-remote-work-costs-5351604/
3. https://www.dol.gov/agencies/whd/flsa/pandemic#14
4. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=2802.
5. https://dcregs.dc.gov/Common/DCMR/RuleList.aspx?ChapterNum=7-9&ChapterId=2105
6. https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2402&ChapterID=68
7. https://www.legis.iowa.gov/docs/code/91A.3.pdf
8. https://malegislature.gov/laws/generallaws/parti/titlexxi/chapter149/section148
9. https://www.revisor.mn.gov/statutes/cite/177.24
10. https://leg.mt.gov/bills/1995/mca/39/2/39-2-701.htm
12. https://newyork.public.law/laws/n.y._labor_law_section_198-c
14. https://sdlegislature.gov/Statutes/Codified_Laws/2077532
15. https://lni.wa.gov/workers-rights/wages/getting-paid/
16. http://www.seattle.gov/laborstandards/ordinances/wage-theft
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Chase Charaba
Chase Charaba is the content marketing manager at PeopleKeep. He started with the company as a content marketing specialist in early 2022. Chase has written more than 350 blog posts for various companies and personal projects throughout his career. He’s worked for digital marketing agencies, in-house marketing teams, and as the editor for national award-winning high school and college newspapers. He’s also a YouTuber, landscape photographer, and small business owner.