Employees may incur business expenses through the course of their work for travel, tools, equipment, uniforms, and other work-related items. Do you have to reimburse them for these types of expenses? To help you find out, we compiled these frequently asked questions.
Q: How does the federal law impact expense reimbursement?
A: Expense reimbursement might be necessary to satisfy the federal Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements for non-exempt employees. In most cases, under the FLSA, any work-related expense incurred by an employee that would bring the employee’s pay below the minimum wage (or cut into overtime pay) must be reimbursed. Generally, it is a best practice to reimburse all employees for any reasonable business expenses they incur.
Q: What is the deadline for reimbursing employees?
A: Under the FLSA, if the cost would reduce the employee’s pay below the minimum wage or cut into overtime, the reimbursement must be made no later than the next regular payday. In states that require reimbursement for business expenses, most require the reimbursement within 30 days. Check your state law to ensure compliance.
Q: Do I have to reimburse employees for transportation and lodging while they travel for work?
A: Some states require employers to reimburse employees for business trips and other business-related expenses. For example, California requires employers to reimburse employees for all expenses paid (or losses incurred) by the employee while performing their duties. This would include business travel (transportation, lodging, and meals). Check your state law to ensure compliance. Absent a state requirement, employers must also consider their requirements under the FLSA.
Q: Can we set limits on business travel expenses?
A: Employers may set reasonable limits on business travel expenses. For example, some employers require employees to fly coach and will not reimburse employees for upgrades to business or first class. Employers can also dictate what type of lodging or airport transportation is eligible for reimbursement. Limits should be reasonable and communicated to employees in writing before their business trip.
Q: We operate a restaurant that delivers. Do we have to reimburse employees for gas they use when delivering food using their own cars?
A: Some states expressly require employers to reimburse employees for business expenses, such as gas used when driving for company business. Even if your state doesn’t require reimbursement, consider your FLSA compliance. If a non-exempt employee incurs vehicle-related expenses that would bring their pay below minimum wage (or cut into their overtime pay), reimbursement may be required.
Q: How would I reimburse employees who drive their personal vehicles for business purposes?
A: When reimbursing employees for business-related driving, many employers use the IRS standard mileage rate. Alternatively, some employers calculate the actual cost and reimburse employees accordingly.
Q: What is the IRS standard mileage rate? Do I have to use it?
A: The IRS standard mileage rate is optional and includes the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. For 2022, the IRS standard mileage rate is 58.5 cents per mile. The rate is typically adjusted annually.
Q: The IRS rate doesn’t include parking and tolls? How do I handle those?
A: Employees would need to submit a separate reimbursement request for parking and tolls.
Uniforms, Tools, and Equipment:
Q: We require employees to purchase company uniforms that have our logo on them. Do I have to reimburse employees for the uniforms?
A: Several states require employers to pay for the full cost of required uniforms as well as the cost to maintain them. In these states, you should pay for the uniforms upfront or reimburse employees the full amount. Absent a state requirement, if you require the employee to bear the uniform cost, the cost may not reduce their pay below the minimum wage or cut into overtime pay. This rule also applies to any special care, such as dry cleaning or ironing.
Q: Do I have to reimburse employees for tools they need on the job?
A: Some states require employees to pay for the full cost of required tools. In these states, you would either have to pay for the tools upfront or reimburse employees. If there is no state requirement to pay for tools, then you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.
Note: Some states make exceptions for certain types of tools or equipment, such as tools and equipment customarily required by the employee's trade. Check your state law for more information.
Q: How do these rules apply to employees classified as exempt from overtime?
A: Employers are prohibited from making deductions from exempt employees' salaries for uniforms, tools, and equipment. If these deductions are made or employees are required to incur these costs without reimbursement, it may result in the loss of the overtime exemption.
Q: If my employees are required to wear masks to prevent the spread of COVID-19 in the workplace, must I pay for the masks?
A: Some states and local jurisdictions have enacted laws or issued regulations or orders that expressly require employers to provide masks to employees. For example, the Los Angeles County Department of Public Health has issued an order requiring that all employers provide employees with, and require them to wear, a well-fitting medical grade mask, surgical mask, or higher-level respirator, such as an N95 or KN95, at all times while indoors at the worksite. Employers will also need to consider any state requirement for reimbursing employees for business expenses. Absent a state or local requirement to pay for masks/business expenses, you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.
Q: Do I have to reimburse remote workers for Internet access?
A: As mentioned above, some states expressly require employers to reimburse employees for any reasonable business expenses they incur. This would include Internet access from a home office. Where the expense may be used for work and personal use (such as having an Internet connection), consider a system to help employees monitor and record how much of the cost is related to conducting business activities, and reimburse employees at least that amount. Absent a reimbursement requirement, you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.
To help you comply with federal and state laws, consider requiring employees to:
- Obtain supervisor approval before incurring business expenses.
- Document the business purpose of the expense and back up expenses with a receipt.
- Maintain a log of any business miles driven, including the date and the business reason.
- Obtain and submit receipts for business expenses, such as for airfare, hotels, meals, parking, and tools.
- Request reimbursement in writing.