The pandemic has caused many employers to permit their employees to work from home. An unsettled question is what remote work expenses incurred by the remote employee be paid by the employer? Federal and California law is rather murky on the issue.

Expense reimbursement requirements vary depending on the applicable Federal and/or State law.

The Federal Fair Labor Standards Act (“FLSA”) generally does not require an employer to reimburse employees for remote work expenses, unless the amount of those expenses is such that it effectively causes an employee to be paid less than the minimum wage (and/or overtime compensation) for all hours worked. Thus, if an employer has employees who are paid close to minimum wage, the employer will need to look more closely at the types of business expenses the employee may be incurring in connection with remote work to assess whether the expenses are of such an amount that the employee effectively is netting less than minimum wage plus any applicable overtime for all hours worked. If he or she is, expense reimbursement will be required.

In California, Labor Code section 2802 requires employers to reimburse employees for all expenditures necessarily incurred by the employee in direct discharge of duties for the employer, or in obedience to directions of the employer. Application of this standard can prove difficult and case law has made the standard murky. In a 2014 case, Cochran v. Schwan’s Home Service, Inc., the court addressed expense reimbursement requirements in circumstances where employees are required to use their personal cell phones for work purposes. The court held that if an employee is required to use a personal cell phone for business purposes, the employer must reimburse the employee even if the business use of the personal phone does not cause the employee to incur expense in excess of their usual, flat monthly rate.

The court did not specify how much an employer is required to pay in expense reimbursement; rather it merely held it should be a reasonable percentage of the employee’s bill. To date, there has been no further clarification from the Labor Commissioner or the courts for employers on the scope and amount of expense reimbursement that is required under California law.

Due to the legal uncertainty around remote work expense reimbursements, Plaintiffs’ attorneys are likely to pursue claims for employees that their employers did not comply with their expense reimbursement obligations under Labor Code section 2802.

To mitigate these potential claims employers who require employees to work remotely should consider the types of expenses that these employees are incurring and issue to them a reasonable amount of expense reimbursement to cover those expenses.
These expenses may include use of personal phones and other devices, use of home internet/WiFi, use of office supplies, increased electricity costs, etc. It is unlikely an employer will be able to determine the precise portion of an employee’s expense that is work-related.

Therefore, employers should consider a flat monthly amount to be paid as expense reimbursement to remote workers that the employer believes reasonably covers work-related expenses associated with working from home. An employer also can limit employee expenses by providing employer-owned equipment (e.g. cell phones, laptops, printers, hotspots) for employees to use at home. The employer should advise remote employees what the expense stipend is intended to cover (all home-related work expenses) and include a provision telling employees that if, in any month, they feel that the expense stipend is not sufficient to cover their remote work expenses, the employee should notify HR so that the employee’s expenses can be reviewed and a determination made as to whether additional reimbursement is owed.

California Labor Code section 2802 only applies to expenses that are “necessarily” incurred in direct consequence of the job duties or in complying with an employer’s directions. Thus, if an employee incurs expenses that are wholly unnecessary or unreasonably exorbitant, they need not be reimbursed. Employers also can adopt a policy that mandates employees obtain advance approval before purchasing any items to use for their remote work.

The “necessarily incurred” standard also raises another issue; if an employer reopens its offices and employees are may return to the office to perform their jobs, but are permitted to voluntarily choose to continue working remotely, there is a substantial argument that the employee’s remote work expenses are not “necessary” and need not be reimbursed, particularly if the employer has notified employees that home office expenses will not be reimbursed in this situation.

Employers need to evaluate their remote work arrangements and adopt expense reimbursement policies. Fortunately, if an employer has failed to make these reimbursements, they can retroactively issue expense reimbursement for prior months of required remote work. However, before an employer implements any new work or reimbursement policy, the employer should check with its legal counsel.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.