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How Remote Work Is Changing Business Expense Policies

Brink's Money

16 Jul 2021

Historically, the logic for business expense management was clear. On a work trip? Get reimbursed for gas and lodging, and a per diem for your meals. Need another pen or batteries for your mouse? Grab them from the supply room.

The growth of remote work in recent years added complexity to expense management. COVID-19 threw every company into the deep end, ready or not.

As a business owner, what do you need to know about managing employee expenses in this new environment?

What are your legal obligations to remote employees?

Do you have to pay for employees’ Internet service or cell phone? What if they already have an unlimited policy? What if they need to print a document or want a second monitor?

The answers vary by item and state.

Federal policies on expense reimbursement of remote employees

At a federal level, you’re unlikely to be “on the hook.” The Fair Labor Standards Act (FLSA) requires reimbursement only if remote employees’ expenses reduce their compensation below the minimum wage ($7.25 for hourly employees or $684 per week for salaried employees).

The Americans With Disabilities Act (ADA) does require reimbursement for remote employees whose qualified disabilities justify “reasonable accommodation” under the ADA. The ADA requirements don’t apply to non-qualifying employees.

Recent state policies are more demanding.

State policies on expense reimbursement of remote employees

At a state level, the regulations vary, with California having enacted the most thorough requirements. They’re one of at least 10 states that has a state-based layer of requirements on top of limited federal measures.

Section 2802 of the California Labor Code requires employers to reimburse remote employees for “all necessary expenditures or losses incurred by the employee as a direct consequence of the discharge of his or her duties.” The key word, of course, is “necessary.”

Several cases in California courts offer guidance. Most notably, the courts have ruled that Internet and phone expenses—if their usage is required for remote work—qualify for a percentage reimbursement, even if the employee doesn’t incur additional expenses (i.e. already has an unlimited policy and sufficient speed). 

Courts in various states have been reluctant to allow employees to claim overhead, such as utilities, rent, or mortgage, as “necessary” expenses. The 2017 Tax Cuts and Jobs Act also made it more difficult for full-time employees to deduct unreimbursed expenses, at least until 2025.

If you’re operating under a hybrid plan with some employees in the office, whether an expense qualifies as “necessary” depends on whether remote work is required (or even encouraged). If you’re encouraging employees to work out of the office but they choose to work from home, their expenses are no longer “necessary.”

Words like “necessary” or “required” populate a number of state policies. When reimbursement must occur varies, too. In Minnesota, employees must be reimbursed only at the end of their employment; in New York, it’s a misdemeanor if employers don’t reimburse employees promptly after an expenditure.

Compliance alone, however, may not be enough to keep employees engaged.

The bare minimum may not be best.

You don’t need a study to tell you about the cost of employee turnover—or the benefits of employee retention. So how can you use the new work environment to keep employees happy and productive?

No state or federal law is likely to require you to pay for standing desks or high-end office chairs. The Occupational Safety and Health Act (OSHA) requires only that employee workstations don’t have “ergonomic hazards.”

But employees also have expectations, and, for many, leaving an office meant losing valued benefits—a spacious desk and chair; easy access to pens, paper, and a printer; a second monitor; webcams and dedicated meeting spaces.

Financially, you won’t be able to replicate the ideal environment for every employee. Some effort to do so, however, may help with morale. Additionally, you want to avoid a policy that can hurt productivity.

For example, if employees aren’t getting reimbursed for stamps (or the process is tedious), they may wait to submit paper documents until the next time they go by the office—perhaps slowing order processing and delaying revenue.

An uncomfortable chair may mean fewer focused hours. A slow Internet connection, aging laptop, or single-screen work may waste seconds with every click, which, across the company, compound into hours and days.

If you’re trying to get a rough calculation of per-employee costs for remote work:

Even if it’s impractical to replace the free coffee and toilet paper that an office environment provides, know that your employees are aware of their increased costs.

You may want to remind them of the money (and time) they’re saving on their commute—likely a worthy tradeoff and a way to soften the economic impact.

There are other smart strategies.

4 ways to manage expenses effectively for the remote workforce

1. Build your policies based on the most restrictive state legislation.

There’s an historical pattern in which California passes progressive legislation, which is later adopted by other states and, eventually, becomes federal policy.

For companies with remote employees across the country, a policy that adheres to the California standard avoids the headache of developing an array of state-by-state policies.

Even if all your employees are in Nebraska or Georgia, building a policy based on California standards may future-proof your plans.

No matter what you decide, a good expense policy includes:

  • Timeline for submitting expense requests;
  • Details of what to send and to whom (including a requirement for advance approval of expenses over a certain limit);
  • Outline of qualifying expenses;
  • Note that expensed items are subject to return at the end of employment (at risk of a payroll deduction).

2. Start with a stipend, ask employees to submit overages.

Employers have to thread the needle: If they don’t reimburse necessary expenses, they might violate state or federal law; if their reimbursements are overly generous, they run afoul of tax laws that require overpayments to be registered as income.

As written, most laws place the burden on employers to find the balance. The FLSA, for example, requires employers to identify whether an employee’s expenses might deflate their earnings below the minimum-wage threshold.

A stipend to cover a percentage of Internet and cell phone costs, as well as other “necessary” expenses, is a good start. (Be sure to document how you arrive at the amount.)

By starting with a stipend, you avoid a cumbersome, item-by-item accounting system, which otherwise might require employees to report how many pieces of paper they printed each month or the number of paper clips they used.

Then, as part of your policy, ask that employees submit expenses beyond the stipend. By doing so, you shift some of the monitoring and reporting burden—taking responsibility for anticipated expenses while asking employees to identify and document overages.

3. Take advantage of your buying power (past or present).

A stipend may not be the least-expensive way to manage remote work expenses, however, especially for buying equipment. Each employee has the purchasing power of a single buyer. A large organization can get bulk discounts on common supplies.

Similarly, it may be less expensive to ship existing office supplies to employees than to purchase new ones. This is especially true if you don’t plan to return to your physical office space or will do so with a much smaller footprint.

4. Keep employees informed—no matter what you do or don’t reimburse.

No one has it all figured out, and everyone’s situation is a little different.

Some of your employees may love their new work environments, even if they spend half their workday perched on a couch or at a dining room table. Others can’t wait for a return to the social atmosphere of an office and the well-appointed conference rooms.

What your employees want—and what your company can realistically provide—will vary. One thing every company can do? Keep employees informed about what you’re doing and why you’re doing it.

It’s your best bet to win support when some percentage of your workforce must manage a suboptimal work environment.

At a logistical level, the easiest way to streamline expense reporting is to move away from paper receipts and toward a digital system of expense management—exactly what Brink’s Business Expense offers.

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