Reimbursement of Work-Related Costs for Remote Employees

If not done correctly, reimbursing workers for remote work expenditures might result in legal and tax penalties. Here’s how to repay staff.

What you’ll discover:

Which states need remote work reimbursement?
What expenditures are employers expected to cover?
How should businesses repay employees who work from home?
Is it possible for an employer to refuse to refund expenses?

Remote work may be beneficial to both employees and companies, but it also offers new and unique obstacles. When the principal place of work is the house rather than the office, the distinctions between what costs an employer should pay might get blurred. Answers to frequently asked questions concerning reimbursing expenditures for remote workers may be found below.

Which states need remote work reimbursement?

Employers are required to pay employees for expenditures spent during mandated remote work in eleven states plus the nation’s capital, Washington, D.C. Employers are not compelled to refund expenditures when workers opt to work remotely since the costs spent are a result of the worker’s decision to work from home.

The following states mandate payment for remote work expenses:

California
Iowa, Illinois
Massachusetts
Minnesota
Montana
The state of New Hampshire
New York City
The state of North Dakota
Pennsylvania
The state of South Dakota

Even if your company is not located in one of these states or Washington, D.C., reimbursing remote work expenditures is a sound business practice that may help you recruit and retain skilled personnel. It may also increase the productivity of your workers by providing them with the resources they need to perform better, such as a second computer display.

Set clear expectations upfront, regardless of the demand. Create a remote work policy that specifies the remote work expenditures your company will or will not cover, as well as the procedure for obtaining reimbursement for those charges.

What expenditures are employers expected to cover?

What is necessary varies by state. In general, states compel employers to compensate expenditures incurred by remote employees in order for them to execute their tasks. This implies that the reimbursable expenditures are determined by the task performed by the remote worker.

For example, most remote employees need a computer, internet connectivity, and a phone. They may also need a camera for virtual meetings or a printer if their profession demands wet paper signings rather than electronic signatures on a regular basis.

Employers may and often do control expenditures and request spending permission in advance. For example, if a remote worker chooses a more upscale office chair, an employer may agree to repay just the cost of a chair that fits the job’s specifications.

Another frequent question is whether things or services used for both professional and personal reasons are qualified for reimbursement. Even if a worker already has a home internet connection for personal use, the employer may be compelled to compensate them even if the worker incurs no extra costs. Businesses in California, for example, must pay a fair amount of mixed-use expenditures. These regulations are also extended to other utilities in certain areas. This becomes much more problematic when a remote worker shares internet and other expenses with roommates who may also work remotely for different firms.

How should businesses repay employees who work from home?

Companies have a lot of leeway in deciding how to pay remote work expenditures, while certain solutions have tax implications.

Some companies demand remote employees to provide paperwork, generally a receipt, to support all reimbursable costs. While time-consuming, this is the only method to avoid paying taxes on the amount refunded, which would otherwise be considered additional income for the employee. An employer’s reimbursement program must meet three criteria under an IRS responsible plan:

Connection for business. The policy must require the employee to show that the expenditure was paid or incurred while performing job obligations.
Substantiated. The policy must require the employee to provide paperwork demonstrating the date, location, price, and purpose of the cost within 60 days of purchase. A Reimbursement Form is often required by businesses.
Unsubstantiated sums must be returned. The policy may require your company to refund any unfounded reimbursements or allowances within 120 days.

Reimbursements under an accountable plan may also be deducted from a company’s taxes as business costs.

If a company isn’t worried about the tax implications or the inconvenience of an accountability plan, it may create an informal reimbursement policy. Some firms, for example, give a monthly stipend to remote employees to offset remote work expenditures. If a company operates in D.C. or one of the 11 states that mandate compensation for remote work expenditures, the stipend must at the very least fulfill the legal requirements. Moreover, any stipend or unjustified expenditure must be recognized as extra revenue for the worker and reported on their W-2.

Is it possible for an employer to refuse to refund expenses?

Yes. If no legislation demands payment and no employer’s practices necessitate it, expenditure reimbursement requests might be denied. Even though a company operates in an area where reimbursement is required by law, there are times when it may deny reimbursement:

Unnecessary costs – A company is not required to refund expenses that are not required for work performance. This includes completely needless goods such as decorations as well as excessively pricey versions of necessities such as a high-end designer phone cover.

Unsubstantiated expenditures – Unless the policy specifically states otherwise, a company is not required to refund expenses for which the remote worker cannot produce acceptable verification.

Costs that violate or fail to comply with company policy – A firm is not required to refund expenditures that violate or fail to comply with its rules. This statement emphasizes the need of having a clear Work from Home Policy that outlines reimbursable charges.