Remote Employee Reimbursement Rules by State

Remote work is now a huge part of our work culture, with millions of people working from home in 2023 compared to just a few years ago. While remote jobs bring flexibility, they also raise questions like: Who pays for the internet, computer, or other work-related expenses? Are employers legally required to reimburse these costs, or does the burden fall on employees?

Understanding these concerns can be challenging since remote employee reimbursement rules differ by state and depend on the company’s policies and resources. Knowing the rules about reimbursement is key for both companies and employees.

What Federal Rules Say About Reimbursement

At the federal level, the Fair Labor Standards Act (FLSA) provides some guidance on reimbursement. Employers are required to cover work-related expenses only if those costs would reduce an employee's earnings below the federal minimum wage.

For instance, if an employee’s wages after deducting expenses like internet and phone services fall below $7.25 per hour, the employer must reimburse the difference. However, this law leaves significant gaps, as it doesn’t address work from home expenses reimbursement for employees earning above minimum wage. This gap is where state laws on remote employee expense reimbursement come into play.

 

State-Specific Reimbursement Rules

Different states have their own rules about paying back remote work expenses, and these rules vary widely. Here are some examples:

State	Which Expenses Must be Reimbursed?	Applicable Law
California	Employers must pay back employees for necessary work-related expenses or losses	Labor Code Section 2802
Illinois	Employees should be repaid for expenses directly tied to their job duties.	Wage Payment and Collection Act
Washington D.C.	Costs for tools or supplies workers need to do their job must be reimbursed.	D.C. Mun. Regs. Title 7 § 910
Iowa	Employers must approve and pay back costs within 30 days after a worker submits a claim.	Iowa Code 2022 91A.3(6)
Massachusetts	Work-related expenses that are unavoidable and needed for the job must be reimbursed.	Massachusetts General Law Chapter 149 § 148A
Minnesota	When leaving a job, employees must get refunds for most work-related equipment costs, except for personal tools.	Minnesota Statute 177.24(4)-(5)
Montana	Employers need to cover necessary expenses or losses workers face while doing their job.	Montana Code 39-2-701
Washington	Employers decide on reimbursement, but workers might claim tax deductions for costs they cover themselves.	Wash. Dept. of Labor & Industries
New Hampshire	Costs that workers take on because of their employer's request must be reimbursed within 30 days of proof.	New Hampshire Revised Statutes Title 23 275:57
New York	Businesses must repay agreed-upon costs related to work, such as travel or supplies.	New York Labor Law 198-C

State reimbursement laws are important for ensuring fairness and compliance, as they outline the specific requirements for reimbursing remote workers.

What Counts as a Necessary Expense?

A common question employers face is: What exactly counts as a reimbursable expense? The answer depends on the nature of the work and the tools required to perform it effectively.

Generally, reimbursable expenses for remote workers include:

● Internet Bills: Essential for online meetings, emails, and accessing company systems.

● Office Supplies: Things like pens, notebooks, or printer ink used for work.

● Work Equipment: Computers, monitors, keyboards, or even desks if required.

● Utilities: In some cases, a portion of your home electricity or phone bill may be covered if you work remotely full-time.

If working from home is optional and not required by the employer, some of these costs might not be reimbursed under their employer reimbursement policies.

Creating a Clear Reimbursement Policy

If you’re an employer, a clear reimbursement policy can help avoid confusion. Here’s how to set one up:

1. Define Eligible Expenses

List the specific costs that your company considers necessary and will reimburse. For example, if your organization provides laptops, work from home expenses reimbursement might include only internet costs.

2. Establish Documentation Requirements

Ask employees to submit receipts or other proof for the costs they want reimbursed.

3. Add Deadlines

Make it clear when employees should submit claims, like within 30 days after the expense.

4. Talk About Taxes

Let employees know if reimbursements are taxable or tax-free.

Tax Considerations for Reimbursements

Understanding the tax implications of expense reimbursements is important for both employers and employees. The Internal Revenue Service (IRS) classifies reimbursement plans into two categories: accountable and nonaccountable.

Accountable Plans

Under an accountable plan, reimbursements are not taxable if they meet these criteria:

1. The expenses are directly related to business activities.

2. Employees provide proof such as receipts, within a reasonable timeframe.

3. Employees return any excess funds within a set period (typically 120 days).

Since accountable plan reimbursements aren’t considered wages, they’re excluded from income tax and payroll deductions.

Nonaccountable Plans

Reimbursements under nonaccountable plans are treated as taxable income. This occurs when employees fail to provide proof of expenses or don’t return excess funds. These payments must be included on the employee’s W-2 form and are subject to federal, state, and payroll taxes.

Benefits of Reimbursing Remote Work Expenses

Even if it’s not required by law, covering remote work costs can help businesses in several ways:

• Happier Employees: Paying for internet or supplies shows you value your team.

• Attracting Talent: Employer reimbursement policies can make your company more appealing to job seekers.

• Better Productivity: Workers with the right tools can focus on their jobs instead of worrying about costs.

Final Thoughts

Remote work brings new challenges and figuring out who pays for what is one of them. Federal laws set a basic framework, but state laws on remote employee expense reimbursement fill in the gaps. For employers, having a fair and clear policy can save headaches and improve relationships with remote workers. For employees, knowing your rights can help you avoid paying out of pocket for work-related expenses.

Stay informed and make sure you follow the laws in your state to keep things running smoothly for your team.