What states require reimbursement for remote work?
Eleven states and the nation's capital, Washington, D.C., require employers to reimburse workers for expenses incurred during mandatory remote work. Generally, employers are not required to reimburse expenses when employees choose to work remotely, since costs incurred stem from the worker's choice to work from home.
The 11 states that require reimbursement of remote work expenses are:
- California
- Illinois
- Iowa
- Massachusetts
- Minnesota
- Montana
- New Hampshire
- New York
- North Dakota
- Pennsylvania
- South Dakota
Even if your business is not in one of these states or D.C., however, reimbursing remote work expenses is a good business practice that can attract and retain valuable talent. It can also make your workforce more productive by allowing them to get the tools they need to perform better, like a second computer monitor.
Regardless of any requirement, set clear expectations upfront. Make a remote work policy that identifies what remote work expenses your business will or will not reimburse as well as the process to get those expenses reimbursed.
What expenses are employers required to reimburse?
State laws vary on what is required. Generally, when it is required, states require employers to reimburse expenses that are necessary for remote workers to perform their jobs. This means that the reimbursable expenses depend on the job the remote worker performs.
Most remote workers, for example, require a computer, internet access, and a phone. They may also need a webcam for virtual meetings or a printer if their job routinely requires wet document signatures rather than electronic signatures.
Employers can and do routinely limit costs and require advanced approval of expenses. For example, if a remote worker prefers a fancier office chair, an employer may agree to reimburse only what they would pay for a chair that meets the job's requirements.
Another issue that commonly arises is whether items or services used for both work and personal purposes are eligible for reimbursement. If a worker already has a home internet connection for personal use, an employer may still be required to reimburse them even though the worker incurs no additional expense. In California, for example, businesses must pay a reasonable percentage of mixed-use expenses. In some states, these requirements even extend to other utilities. This can get even more complicated when a remote worker shares internet and other costs with roommates, who may be working remotely for other employers.
Reimbursing expenses can be confusing. A Rocket Lawyer network attorney can help you comply with your state's requirements and stay on top of the potential tax consequences discussed below.
How should employers reimburse remote work expenses?
Employers have considerable flexibility to determine how to reimburse remote work expenses, though some options have tax consequences.
Some employers require remote workers to substantiate all reimbursable expenses with documentation, usually a receipt. Though tedious, this approach is the only way to avoid paying taxes on the amount reimbursed, which will otherwise be considered supplemental income for an employee. Under an IRS accountable plan, an employer's reimbursement policy must satisfy three qualifications:
- Business connection. The policy must require the worker to demonstrate that the expense was paid or incurred during the performance of job duties.
- Substantiated. The policy must require the worker to prove the expense was real and necessary by providing documentation that shows the date, place, price, and purpose within 60 days of purchase. Businesses often require the use of a Reimbursement Form.
- Return unsubstantiated amounts. The policy may direct the return of any unsubstantiated reimbursements or allowances to your business within 120 days.
A business may also deduct reimbursements under an accountable plan from its taxes as business expenses.
If a business is not concerned about the tax consequences or does not want the hassle of an accountable plan, it may implement an informal reimbursement policy. Some employers, for example, pay remote workers a monthly stipend to cover remote work expenses. If a business operates in D.C. or one of the 11 states that requires reimbursement of remote work expenses, the stipend must minimally cover the expenses required by law. Additionally, the stipend amount or the cost of any unsubstantiated expense must be treated as supplemental income for the worker and reported on their W-2.
Can an employer refuse to reimburse expenses?
Yes. If no law requires reimbursement and it is not required by an employer's own policies, expense reimbursement requests can be refused. Even if a business operates in a location that requires reimbursement by law, there are circumstances when it can refuse reimbursement:
Unnecessary expenses — A business does not have to reimburse expenses that are not necessary for job performance. This includes wholly unnecessary items like decorations or unnecessarily expensive versions of necessary items such as a high end designer phone case.
Unsubstantiated expenses — In most instances, a business does not have to reimburse expenses for which the remote worker cannot provide adequate documentation unless the policy does not require such documentation.
Expenses that violate or do not comply with company policy — A business does not have to reimburse expenses that violate or do not meet its policies. This point further underscores the importance of a clear Work from Home Policy that specifies reimbursable expenses.
If you have additional questions about reimbursing expenses for your workers, reach out to a Rocket Lawyer network attorney to get answers.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
