Working remotely gives employees more control over where and when they work. In a post-COVID survey conducted by the National Bureau of Economic Research, just over half of Americans report working from home at least once a week. Telecommuting comes with job-related costs, such as electricity bills and internet charges. So, what happens when remote workers often end up paying out of pocket?
What you’ll learn
What you’ll learn
Key takeaways
- Some states have their own expense reimbursement laws
- No federal law requires reimbursements, but the Fair Labor Standards Act may kick in if an employee’s remote work expenses reduce their wages below the federal minimum
- Remote work reimbursement is when an employer refunds work from home (WFH) employees for work-related expenses
Are these expenses reimbursable? Does the law require remote work reimbursements, or as an employer, do you offer them at your own discretion? For employers who rely on remote talent, this can be a tricky topic.
In this guide, we break down what this type of reimbursement is, which expenses could be covered, and some states with rules in place. We’ll also discuss some tips on how to craft a policy that has benefits that both employees and employers will appreciate.
Remote work reimbursement: What it is and why it matters
Remote work reimbursement is when an employer refunds WFH employees’ job-related expenses that they had to pay out of pocket.
In some states, the law requires employers to reimburse remote workers for necessary business expenses. Understanding what counts as a reimbursable expense and making sure you pay employees back for it can help you stay compliant.
When employers cover costs related to these telecommuting expenses, it reduces the financial burden of working from home. Next, let’s see if there are any costs that employers are legally required to cover.
What remote work expenses must employers reimburse?
The expenses employers must refund depend on applicable reimbursement regulations and your company’s reimbursement policies.
Common remote work costs that employers reimburse include:
- Internet charges
- Cell phone bills
- Office supplies
- Utility costs like work-related electricity bills
- Home office equipment
Reimbursements required by law are mandatory. However, employers can choose to cover remote work costs, even when it’s not legally required. In those cases, reimbursement is discretionary.
Legal framework governing reimbursements
Are you planning to reimburse remote work expenses? To stay compliant, we have more resources on how to pay remote employees and see which laws apply.
Federal law on remote work reimbursement
No federal law directly governs employee reimbursement. However, the Fair Labor Standards Act (FLSA) may sometimes apply. It protects all US workers with employment standards.
The FLSA says that work-related job costs should not reduce employees’ compensation below the federal minimum wage. The minimum wage is the lowest hourly wage you can legally pay a US worker. At the federal level, it’s currently set at $7.25 per hour.
If a business-related expense drops an employee’s wages below the federal minimum, employers must reimburse costs to at least bring the wage back to the legal limit.
Remote work reimbursement laws by state
Some states have expense reimbursement laws that apply to all employees in their jurisdiction.
| State | Law | Reimbursement summary |
| California | Labor Code Section 2802 | Employers must reimburse employees for all necessary expenses they incur while doing their job or following employer instructions. |
| Illinois | Wage Payment and Collection Act | An employer must reimburse employees for all reasonable expenses or losses they incur while performing job duties, provided these costs primarily benefit the employer. |
| Iowa | Wage Payment Collection, 91A.3 | If an employee incurs an employer-approved expense, it should be reimbursed upfront or within 30 days of submitting a claim. |
| Pennsylvania | Wage and Payment Collection Law | Once an employer agrees by contract or policy to reimburse an expense, the payment is due within 10 days after the agreed date or within 60 days if there isn’t a specific payment timeframe. |
| South Dakota | Codified Law 60-2-1 | An employer must cover all necessary expenses employees pay out of pocket when doing their job or following employer orders. |
| North Dakota | Century Code t34c02 | An employer must reimburse employees for all necessary expenses incurred while performing their job duties. This excludes costs related to tools or equipment that the employee also uses outside the scope of employment. |
| New York | Section 198-C | If an employer has agreed to provide reimbursement, they must make payments within 30 days after the due date. The law doesn’t apply to professionals earning over $1,300 per week. |
| Minnesota | Section 177.24 | When terminating an employment contract, an employer must reimburse employees for job-related expenses they incurred. |
| New Hampshire | Section 275:57 | If an employee pays for job-related expenses, the employer must reimburse them within 30 days of receiving proof of the costs. |
| Montana | Administrative Rule 24.29.720 | Any job-related expense is reimbursable if an employee can substantiate it with a receipt. |
The District of Columbia and Seattle also have their own reimbursement laws. Map out the location of each remote employee and tailor reimbursements to their jurisdiction’s reimbursement laws (if any). Plus, don’t forget to factor in the federal minimum wage requirement.
Moving on, let’s review what many employers look at when it comes to organizational telecommuting stipend rules.
How to create a clear and compliant remote work reimbursement policy
What steps should you follow to create an expense reimbursement policy that enhances transparency and compliance?
Determine reimbursable remote work expenses
Common WFH expenses include internet, phone usage, and office supplies. Some states, like California, require employers to reimburse all employees’ expenses incurred while doing their jobs. Check your remote workforce’s state law to ensure you cover mandatory expenses.
Choose a reimbursement method
Accountable and nonaccountable plans are the two primary ways to set up an expense reimbursement program.
According to the IRS, your reimbursement policy is an accountable plan if it meets all the following requirements:
- Employee work expenses are business-related
- Workers substantiate their business-related expenses within a reasonable timeframe (no more than 60 days from the day of incurring the expense)
- Employees return excess reimbursement within a reasonable timeframe (no more than 120 days from the date of incurring the expense)
If your reimbursement program fails to meet one or more of these requirements, it’s considered a nonaccountable plan. The method you choose will determine whether reimbursements are taxable. Generally, the accountable plan is the better option.
Define procedures for expense reimbursement requests and approval
Outline the steps employees should follow to substantiate expenses, submit reimbursement claims, and receipts. Also, determine when employees should submit reimbursement forms. Regarding accountable plans, make sure the deadline aligns with applicable state expense reimbursement laws and IRS rules.
Use technology
With reliable HR software, you can manage every law your company must comply with all in one place, including reimbursement rules. Remote employees can also submit their expense claims, and you can review and approve them right within the platform. And that’s not all.
If understanding payroll deductions and taxable reimbursements sounds overwhelming, payroll systems automate and simplify these calculations.
Communicate your reimbursement and remote work policy
Publish the policy in remote worker handbooks, onboarding guides, and internal portals. That way, from the moment they join your organization, remote employees understand how reimbursements work.
Are remote work reimbursements taxable?
According to the IRS, reimbursements under an accountable plan are not considered wages. And for this reason, they are not subject to income taxes, Social Security, or Medicare deductions. Under nonaccountable plans, the IRS considers reimbursements as taxable income and must be included as such in an employee’s W-2. In that case, when calculating payroll deductions and taxes, you’ll need to factor in reimbursements
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What’s next for remote work reimbursement? Trends to watch
According to McKinsey, a global strategy and management consulting firm, when employees get the option to work remotely, 87% take that offer. Since many employees prefer working from home, employers now offer remote work reimbursements. This helps to attract and retain top talent in a competitive job market, as well as meeting legal requirements. What’s more, employers are offering some of the most desired WFH benefits, including home office stipends and internet reimbursement.
However, organizations are becoming more creative with employees that work partly remotely and partly on-site. For example, to enhance hybrid work, business advisory firm Deloitte rolled out a $500 WFH technology subsidy and expanded reimbursable commuting expenses.
Simplify remote work reimbursement with a payroll provider
As more employers recruit talent from across the country, understanding which expenses employees expect to be covered — and which are required by law — is something more organizations are paying attention to. Taking time to review state-specific requirements and clarifying your reimbursement policy can help you stay compliant and support your remote team. OnPay gives you the tools you need to handle payroll, human resource planning, and employee benefits — all connected in one system. This makes it easy to manage reimbursements and take great care of your remote team.
Get started with OnPay today and see how we help you effectively manage your team and automate payroll calculations.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.