The following article was sourced from JD Supra.

As remote work becomes increasingly prevalent, one crucial aspect that employers and employees must address is the allocation of expenses incurred in a remote work setup. In the evolving landscape of work, the shift towards remote employment has raised complex questions regarding the responsibilities of employers towards covering remote work expenses.

This topic, increasingly relevant in today’s work environment, hinges on understanding both the legal framework and practical implications of reimbursement requirements. State labor laws, alongside federal regulations, provide a structure through which we can assess when an employer is obligated to bear the costs associated with remote work.

In this guide, we explore the key considerations regarding who pays for remote work expenses and when these expenses should be covered.

Reimbursement Requirements: A Closer Look

The cornerstone of determining an employer’s responsibility towards remote work expenses lies within the categorization of these expenses as ordinary and necessary “work” expenses, distinct from general business expenses. This distinction is crucial, as it sets the stage for evaluating the specific conditions under which home office expenses qualify for reimbursement.

The Criteria for Home Office Expenses

A pivotal aspect of these reimbursement considerations is whether the home office qualifies as the principal place of business.

This involves two critical criteria:

  • The space in the home must be used exclusively and regularly for work, and the employee must not have another location where they perform their work. This means that makeshift work areas, such as the kitchen table, do not meet the criteria. Similarly, employees who work in a hybrid model or have access to an office are generally not eligible for reimbursable home office expenses.
  • The nature of remote work — whether it is involuntary or voluntary — also plays a significant role in some states. This distinction influences the evaluation of whether an expense deduction qualifies as an ordinary and necessary business expense. The rationale behind this is to ascertain the inherent need for such expenses in the execution of one’s work duties remotely.

Employer Responsibilities: Providing Necessary Support

Employers have a responsibility to provide necessary support to facilitate remote work. This includes:

  • Equipment and Tools: Employers should provide essential equipment such as laptops, monitors, and software licenses necessary for remote work.
  • Internet and Communication: Employers may cover or subsidize expenses related to internet connectivity, phone bills, and communication tools required for remote work.
  • Workspace Ergonomics: Employers should ensure that employees have access to ergonomic furniture and equipment to maintain a comfortable and safe remote workspace.
  • Training and Development: Employers should invest in training to educate employees on remote work best practices, including cybersecurity and data protection measures.

Employee Responsibilities: Personal Expenses and Contributions

While employers are responsible for providing the infrastructure and tools necessary for remote work, employees may also incur certain expenses. Employees should be prepared to cover:

  • Home Office Setup: Employees may need to invest in home office setups, including desks, chairs, and lighting, to create a conducive work environment.
  • Additional Equipment: Employees may choose to purchase additional equipment or accessories beyond what the employer provides to enhance their productivity or comfort.
  • Internet Upgrades: If employees require higher internet speeds or data plans for work-related activities, they may need to cover the additional costs.
  • Workspace Maintenance: Employees are responsible for maintaining their home office space, including repairs and maintenance costs.

Determining Expense Coverage: Clarity and Communication

Clarity and communication are essential in determining which party covers remote work expenses and when they should be reimbursed. Consider the following guidelines:

  • Company Policies: Employers should establish clear policies outlining which expenses they will cover and any reimbursement procedures.
  • Negotiation and Agreements: Employers and employees may negotiate expense coverage as part of employment contracts or agreements.
  • Documentation and Reimbursement: Employees should keep records of eligible expenses and submit reimbursement requests according to company policies and procedures.
  • Updates and Reviews: Employers should periodically review expense coverage policies to ensure they align with evolving remote work dynamics and legal requirements.

State Laws and Federal Implications

The following states have enacted regulations to address the nuances of remote work expenses: California, Illinois, Iowa, Massachusetts, Minnesota, Montana, New Hampshire, New York, North Dakota, Pennsylvania, South Dakota, and the District of Columbia. These states have enacted laws that mandate employers to reimburse employees for certain remote work-related expenses.

These remote work-related expenses can include, but are not limited to, cell phones and home internet costs. In some instances, adjustments in compensation may be considered to offset these additional costs, highlighting a nuanced approach to managing the financial implications of remote work on both employers and employees.

In a recent holding from California’s First District Court of Appeal, IBM was required to provide business expenses to employees that the employees incurred from necessary remote work for the benefit of the employer, regardless of whether the remote work was at the whim of the employee. (Thai v. Int’l Bus. Machines Corp., 93 Cal. App. 5th 364, 310 Cal. Rptr. 3d 787 (2023), review denied (Oct. 11, 2023).

The Court based its holding on a two-part inquiry under the state’s labor code: (1) did the employee make expenditures and (2) were the expenditures a direct consequence of job duties at the direction of the employer? These necessary expenses included telephone services, internet access, headsets, computers, and accessories for their computers. Other jurisdictions are likely to come to similar conclusions on these narrow factual grounds in the future.

On the federal level, the Fair Labor Standards Act (FLSA) provides a broader framework, emphasizing that employers are not generally required to reimburse employees for work-related expenses unless failing to do so would result in the employee’s earnings dropping below the minimum wage. This federal guideline underscores the importance of ensuring that employees are not unduly burdened by work-related expenses to the extent that it affects their compensation unfairly.

Practical Implications and Best Practices

For employers navigating the complexities of reimbursing remote work expenses, implementing policies that are both compliant with the law and supportive of employees’ needs is crucial. This involves:

  • Clear Communication: Employers should establish and communicate clear policies regarding which expenses are reimbursable and the process for seeking reimbursement. This transparency helps set expectations and prevent misunderstandings.
  • Equitable Treatment: Ensuring that policies are applied consistently and fairly across the organization is crucial to maintaining trust and morale among remote employees.
  • Regular Review: Laws and regulations surrounding remote work are evolving. Regularly reviewing and updating policies in response to legal changes and organizational shifts ensures ongoing compliance and relevance.

Conclusion

The responsibility of employers to cover remote work expenses is a multifaceted issue that requires careful consideration of legal requirements and practical implications. Navigating remote work expenses requires collaboration and clear communication between employers and employees.

Establishing clear policies, documenting expenses, and ensuring compliance with legal regulations are crucial steps in managing remote work expenses effectively. By understanding the distinction between ordinary and necessary work expenses, the criteria for a qualifying home office, and the impact of state and federal laws, employers can navigate these challenges more effectively.

As the landscape of work continues to evolve, so too will the approaches to managing and reimbursing remote work expenses, reflecting the ongoing balance between employer obligations and employee needs in the modern workforce.