Posted on: July 17, 2024

The costs of purchasing, maintaining and replacing uniforms, tools and equipment can be significant. As a result, employers may ask whether they can shift these costs to employees or whether employers must reimburse/pay for these items themselves. To help you understand the rules, we compiled answers to these frequently asked questions.

General reimbursement

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/paid for by the employer. Generally, it is a best practice to do so for 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/payment by employers for business expenses, most require the reimbursement within 30 days. Check your state law to ensure compliance.

Business travel

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 won’t 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.

Vehicle expenses

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/payment by the employer 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 2024, the IRS standard mileage rate is 67 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 employers 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.

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: Our employees are required to use certain safety equipment. Do I have to pay for required safety gear?

A: Generally, employers must pay the full costs of personal protective equipment (PPE) required under Occupational Safety and Health Act regulations. Employers must also pay for replacement PPE used to comply with the regulations. However, when an employee has lost or intentionally damaged PPE, the employer isn’t required to pay for its replacement (although, the FLSA rules pertaining to deductions still apply and state law may also have restrictions). For more information, review this OSHA handout.

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.

Conclusion

Make sure you comply with applicable laws on business expenses employees incur as part of their job. 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.