Does your company’s business expense reimbursement policy address the work-from-home situations that have become the new (at least temporarily) norm?
At least seven states have expense reimbursement requirements for employers (California, Illinois, Iowa, Montana, New Hampshire, North Dakota, South Dakota, as well as Washington DC), but the laws differ. For example, in California, Labor Code § 2802 requires employers to indemnify employees for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” What this means for employers is frequently litigated, and the lines are not always clear. Unlike California, Illinois’ expense reimbursement law permits employers to create written expense reimbursement policies specifying the amount and requirements for business reimbursements that may limit what an employer is required to pay as long as the amount is not de minimis. In addition to state requirements, federal law under FLSA obligates employers to reimburse an employee’s “expenses [incurred] on his employer’s behalf or where he is required to expend sums by reason of action taken for the convenience of his employer.” 29 CFR § 778.217(a).
Plaintiffs’ attorneys have been pushing the boundaries of reimbursement policies for work-from-home expenses. In Williams v. Amazon.com Servs. LLC, No. 22-CV-01892-VC (N.D. Cal. June 1, 2022), the district court refused to dismiss allegations at the pleading stage that a software engineer’s work-from-home expenses covering “physical space, internet, and electricity” were reasonable expenditures necessary for discharging his duties and required reimbursement under California Labor Code § 2802.
In addition to changing workplaces, economic trends have led the IRS to reevaluate mileage reimbursement policies. The newly released consumer price index for June 2022 revealed what many individuals have been experiencing—increased costs especially for gas and electricity. In a rare mid-year move, the IRS announced an increase for the mileage rate deductible for the final six months of 2022, increasing it for business travel from $0.585 cents to $0.625 cents per mile. Although employers are not required to reimburse at this rate, the IRS rate is one acceptable “benchmark” for mileage reimbursements. See, e.g., Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007). If employers are not using the IRS rate, they should have a reasoned basis for their mileage reimbursement rate. The expense reimbursement policy also should permit employees to seek additional reimbursement if the standard policy is insufficient.
However, not all news need burden employers. The Ninth Circuit recently handed California employers a win when it affirmed summary judgment against a class action claim that an employer was required to reimburse successful job applicants for time and travel expenses incurred for pre-hiring drug tests. In Johnson v. WinCo Foods, LLC, 37 F.4th 604 (9th Cir. 2022), the court unanimously affirmed the district court’s finding that post-offer applicants were not employees prior to taking and passing a drug test and thus not entitled to reimbursement for time and travel expenses incurred to take the pre-hire drug test.
While employees are driving less as they work from home, they may be incurring other costs that might qualify as necessary business expenses. Employers would be wise to examine their policies to determine if their current reimbursement policies comply with the law.