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Are Your Employees Entitled to Expense Reimbursements When Working from Home? The Answer Is Not as Straightforward as You Might Think

As the COVID-19 pandemic drags into its third year, and many employees continue to work remotely, a spike of wage and hour class actions has emerged regarding claims for unpaid business expenses.  During the early days of the pandemic, employers scrambled to comply with the wave of stay-in-place orders that swept the country.  This required the transfer of millions of employees to remote work settings.  Sometimes these changes occurred without fully considering what expenses an employer must cover for remote work.  The answer to that question is not a simple one.  Both federal and state laws must be considered, and the legal obligation may be determined by the location of your employee’s home or other remote work site.

The federal Fair Labor Standards Act (FLSA) does not automatically require employers to reimburse employees for business expenses.  Instead, the FLSA only requires employers to pay at least the federal minimum wage to nonexempt employees.  Consequently, under federal law, a wage violation only arises from business expenses if the costs of such expenses reduce compensation below minimum wage.  In states with no specific laws requiring employee business expense reimbursement, the relatively low monthly expenses associated with remote work (e.g., internet, telephone, electric, office supplies and other costs associated with working from home) generally only effect minimum-wage or close to minimum wage workers.  As most remote workers typically make significantly more than minimum wage, these minor additional expenses do not normally give rise to wage claims under federal law for nonexempt employees. 

Yet, the above is not the end of the analysis.  The answer to the “reimbursable expense” question can be very different under state or local laws.  Several jurisdictions have passed laws requiring employers to reimburse employees for business expenses, such as California, Illinois, Iowa, Massachusetts, Montana, New Hampshire, North Dakota, South Dakota, the District of Columbia, and Seattle, Washington.  While these laws vary in their requirements, and must be considered on a case-by-case basis, some of them create very broad reimbursement obligations.  For example, in California and Illinois, employers must reimburse employees for all “necessary” expenditures.  Such laws have been interpreted [in California] as including a reasonable percentage of internet and cellular telephone charges – even where the employee’s overall costs have not increased.

Because of these divergent requirements, it is possible, for example, for an employer based in Indiana or Michigan to inadvertently violate Illinois wage and hour laws when it permits employees who may live over the Illinois state line to work from home without reimbursing them for all necessary business expenditures.  Thus, it is imperative for businesses to monitor the location of each employee’s remote work to ensure proper compliance with applicable laws. 

The COVID-19 pandemic has caused innumerable legal issues to rise to the surface.  An employer’s obligation to reimburse employees for business expenses associated with remote work is just one of many issues the business community must consider.  Ongoing discussions with labor and employment counsel also may be prudent to ensure compliance in applicable jurisdictions.

     

  • Matthew S. Disbrow
    Partner

    Matt Disbrow is a labor and employment attorney who advises clients concerning a wide spectrum of employment matters, including wage and hour issues, overtime issues, executive employment and compensation, employment ...

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