Remote Work Expense Reimbursement: A Comprehensive Overview

Remote work has become a standard arrangement for many companies across the globe, introducing new challenges and responsibilities for both employers and employees. One of the most pressing issues is figuring out who’s responsible for the costs of essential work-related expenses incurred by remote employees.

This article provides a comprehensive overview of remote work expense reimbursement, including the legal landscape, best practices and key considerations for companies looking to create a Home Office Reimbursement Policy of their own. We'll also discuss the Wise Business account. The global account that can help your company with all things cross-border.

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The Legal Foundation for Remote Work Expense Reimbursement

The first step toward creating a Home Office Reimbursement Policy is getting a sense of the federal, state and tax requirements involved. Here’s a broad overview of the regulations you’ll need to keep in mind:

Federal Requirements

There isn’t an overarching federal law mandating reimbursement for all remote work expenses. That said, the Fair Labor Standards Act (FLSA) provides some important context.

This law requires employers to reimburse employees for business expenses if those costs would otherwise reduce their earnings below the federal minimum wage, currently $7.25 per hour for hourly workers.¹

This means that if a remote employee’s out-of-pocket expenses for work, including internet costs or office supplies, cause their take-home pay to dip below this threshold, you as the employer must reimburse them.²

Reimbursement Laws by State

Without a broad federal law on expense reimbursement, some state governments have stepped up to fill in the gaps.

California and Illinois are at the forefront of the movement, with courts explicitly stating that remote work expenses including internet access and phone bills must be reimbursed under their employee expense reimbursement laws. For example, California requires employers to cover “all necessary expenditures or losses,” which can include a reasonable percentage of a remote employee’s monthly internet costs and office supplies.³

Other states with reimbursement requirements include:

• District of Columbia: Employers must reimburse for necessary tools and travel expenses related to employment⁴
• Iowa: Employers must pay out authorized reimbursements within 30 days⁵
• Massachusetts: Employers can’t let expenses reduce wages below the state’s minimum wage, which currently sits at $15 per hour⁶
• Montanaand North Dakota: Broad language in state law may include remote work costs such as internet and phone bills⁷
• New York: Employers must follow contractual agreements regarding expense reimbursement⁸
• South Dakota: Employers must reimburse all necessary expenses incurred at their direction⁹

Ultimately, laws on remote work expense reimbursement vary significantly by state. If you have remote employees in multiple states, you’ll need to be especially diligent in tracking and complying with reimbursement laws by state.

Internal Revenue Service Rules

The final legal element to take into consideration is the Internal Revenue Service (IRS).

This federal agency also provides guidance on tax implications for reimbursing remote workers. Under IRS rules, employers can reimburse employees tax-free for business expenses as long as they establish an accountable plan.

The plan requires employees to submit documentation, such as receipts or expense reports, proving that their costs are work-related. Eligible expenses can include internet reimbursement, travel, meals, lodging and transportation.

If an employer doesn’t use an accountable plan, reimbursements may be treated as taxable income to the employee.

How to Create a Step-By-Step Guide for Home Office Reimbursement Policy

Now that you have a sense of the legal landscape, let’s dive into the step-by-step process needed to get started with a Home Office Reimbursement Policy of your own.

There are several different options available to today’s employers. Many companies opt for actual expense reimbursement, where employees submit receipts for each expense and receive reimbursement for the actual amount incurred. Others prefer a monthly stipend, offering a fixed amount to cover anticipated costs.

The right plan for you will depend on your company’s size, resources and compliance obligations. Ultimately, what’s most important is that you set out an accountable plan, since it allows for tax-free reimbursement under IRS rules and regulations.

Here’s how to get started:

#1 - Determine Eligible Expenses

The definition of a reimbursable business expense is going to vary depending on the jurisdiction, but generally it includes any costs necessary for an employee to perform their job duties. For remote employees, common expenses include:

• Internet reimbursement: A portion of the employee’s home internet bill used for work purposes
• Office supplies: Items such as paper, pens, printer ink and other consumables
• Office equipment: Costs related to setting up and maintaining a functional home office, like desks and chairs
• Technology: Laptops, monitors, keyboards and other necessary hardware

As an employer, you’ll want to clearly define which expenses are eligible for reimbursement in your policy and communicate this to every remote employee.

#2 - Outline the Submission Process

Next, you’ll need to set up a process for submitting expense reports and other required documentation.

Typically, companies require employees to fill out an expense report, attach receipts or invoices as proof of purchase and provide a clear explanation of the business purpose for each expense.

Remember that in order to comply with IRS and state rules, you’ll have to submit proper documentation for all reimbursement requests. A clear policy helps minimize errors and delays, keeping your company in compliance and audit-ready.

#3 - Set Any Limits or Caps

To control costs and maintain fairness, it’s common for companies to set limits or caps on reimbursable expenses.

Usually, these are based on industry standards, company budgets or legal guidelines. For example, a company might cap reimbursements at a specific dollar amount each month, or set annual spending limits for certain supplies.

If you choose to provide a monthly stipend instead of reimbursing actual expenses, be sure to specify the amount and what it’s intended to cover so the program aligns with both business and legal requirements.

#4 - Establish Submission Deadlines

Encourage employees to submit their expenses in a timely manner by specifying a timeline within which they’ll need to submit. A typical timeline is anywhere between 30 to 60 days after the expense was incurred.

Not only does a clear timeline help ensure efficient accounting, but it’s also essential for compliance with certain state regulations. For example, an employee in Illinois is required to submit their expense claim within thirty calendar days of incurring the expense.¹⁰

#5 - Set Clear Payment Procedures

Employees need to know how and when they’ll be reimbursed for their expenses. Make sure your policy outlines the payment method and timeline for processing approved expenses. Usually, this is described by a set number of business days after approval.

Also, outline a process for handling disputes and denied expenses, with set guidelines for employees who want to appeal decisions or provide additional documentation.

#6 - Communicate and Train

Clear communication is the key to success both in and out of the workplace. It’s no different when it comes to setting up a remote work expense reimbursement policy.

Make sure all employees receive a copy of the Home Office Reimbursement Policy and have access to training on how to use it. You might institute onboarding sessions, written guides or FAQ documents to walk them through the submission process, what costs are eligible and where to go with any questions that arise along the way.

#7 - Monitor Compliance and Review Policy

You’ll need to regularly review and update your policy to ensure alignment with the latest legal requirements and company practices. That’s especially true if you have remote employees in multiple states.

At least once a year, take the time to review and update the policy as needed, taking into account legal developments, business needs and employee feedback.

Regular audits of submitted expenses and reimbursement records are a great way to maintain accuracy and demonstrate compliance with IRS rules, too.

The Bottom Line

Any employer with remote workers needs to understand the relationship between federal requirements, IRS rules for reimbursing remote workers and reimbursement laws by state.

But remote work reimbursement policies aren’t only about legal compliance. They’re also important for employee loyalty and satisfaction. By regularly reviewing and updating these policies, you’ll ensure a positive experience for everyone in your workplace, regardless of where they’re located.

Frequently Asked Questions

Do Employers Have to Reimburse Internet Costs for Remote Employees?

It depends. In states like California and Illinois, yes, employers have to reimburse a reasonable portion of a remote employee’s internet costs if the internet is necessary for work. But in other states, reimbursement isn’t required unless failing to do so would reduce the employee’s pay below the federal minimum wage.

Are Office Supplies Reimbursable for Remote Employees?

Yes, office supplies required for work are generally considered reimbursable business expenses, especially in states with explicit reimbursement laws.

What if an Employee Chooses to Work Remotely?

If remote work isn’t a requirement, some states may not consider related expenses as necessary. However, if your company is fully or partially remote, these costs are more likely to be seen as necessary and reimbursable.

How Should Employers Handle Multi-State Compliance?

If your remote employees are spread across multiple states, it’s best to tailor your reimbursement policies based on the strictest applicable requirements. That way, you’ll minimize legal risk and maintain fair treatment for all employees.

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Sources:

1. Minimum wage | USA.gov
2. Handy Reference Guide to the Fair Labor Standards Act
3. Remote Work Reimbursements in California: What to Know
4. Chapter 9. Wage Hour Rules
5. Chapter 91A: Wage Payment Collection
6. Massachusetts Wage and Hour Laws
7. Chapter 34-02: Obligations of Employer and Employee
8. New York Labor Law Section 198-C
9. South Dakota Statute 60-2-1
10. Illinois Wage Payment and Collection Act