Work From Home Reimbursements For Employees

The COVID-19 pandemic has been a life-changing experience for everyone. Employees from all different fields have abruptly been uprooted from their workplaces and forced to turn their own homes into makeshift cubicles, a transition for which few were prepared. 

If you’re a business owner, this may be uncharted territory for you, especially as anxious workers raise questions about their home office reimbursements. We can’t tell you when a vaccine will be developed or when you’ll be able to return to standard operating procedures, but we can offer you some insight on one of the most common sources of your employees’ concerns: reimbursement for remote work expenses.

What business expenses does a remote employee have?

The financial requirements a remote worker incurs naturally vary from one business to the next, and we couldn’t possibly cover each one here, but we can list a few of the most common home office reimbursements businesses are required to offer. Most remote work expenses fall under the category of communicative technology: 

• Internet
• Phone plans
• Computers or tablets
• Programs for work
• Video chatting software

It is also worth noting that an employee who sets aside a specific room or area of their household as a home office, may also receive a portion of rent or mortgage payments as compensation. Additionally, even for a remote employee, travel expenses like gas and lodging may be necessary at times.

Do I need to cover employee personal assets and home office expenses?

If your employees reside in California, Illinois, Massachusetts, Iowa, Montana, or Washington, D.C., you will need to provide financial compensation for any products or services they need to get their work done, no ifs, ands, or buts. 

Other states provide a little more leniency in their home office reimbursement laws, but the answer is still probably yes. The Fair Labor Standards Act dictates that the only situations when remote work reimbursement is not required are as follows:

• If, after factoring in the balance of reimbursement funds, the employee is making less than the legal minimum wage or overtime compensation
• If the expenses in question are already being paid for through the Americans with Disabilities Act

If neither of the two above criteria apply, you are legally obligated to reimburse your employees’ home office expenses.

What reimbursements do I NOT need to cover?

It might seem ridiculous that you need to assist your employees in paying for things like home internet or rent when they are already paying for those things out of pocket. We feel your frustration. Fortunately, there are limits to what you are required to cover, so you can rest assured that your employees won’t take advantage.

While you need to accommodate your employees sufficiently to allow them to perform their job duties, there's no need to go above and beyond. Your employees might need to make phone calls for work, but you don't have to spring for the hottest new smartphone when a cheaper model suffices. A home office internet reimbursement policy doesn’t need to cover the highest WiFi speeds available. As long as your stinginess isn’t impeding business, sticking to a small budget is perfectly acceptable.

Is work from home reimbursement taxable?

Your tax situation is unique—just like you! This blog represents generalized tax information and Everlance Support members are not certified tax professionals. If you need help with your specific tax situation, please reach out to your tax advisor.

Due to the unusual circumstances posed by COVID-19, at the time of this article’s writing, you can provide your employees with a qualified disaster payment without worrying about taxes. Of course, the transition back to the office will most likely not be instant, so it’s good to be prepared for post-pandemic remote work reimbursement tax implications.

Implementing a flat monthly work from home allowance may seem appealing due to its relative simplicity, but be aware that a WFH allowance will almost always be subject to taxation, which will cost you and your employees. To save money, we recommend that you establish a tax-free accountable plan. Such a plan needs to factor in the specific costs of each individual employee’s reimbursement. This may sound overwhelming, but it only requires your employees to provide you with receipts for all their business expenses. If you have provided them with more reimbursement money than they have actually used, they’ll need to return the excess funds promptly.

At the end of the day, reimbursing your newly remote employees isn't nearly as complicated a process as one might expect. Just make sure to adhere to any applicable state laws and diligently keep track of all documentation of business expenses, and you can efficiently formulate a plan that keeps both you and your employees happy.