Expense Reimbursements: Are Your Employees Paying to Work?

How many times have you walked to your supply room because the printer ran out of paper, only to find that someone else took the last ream and didn’t bother to tell anyone to order more? Chances are you have had to make a run to the local office supply store on occasion, or better yet, you’ve had someone else in the office do it for you. When that happens, who pays the price for the trip?

 Whether they are buying uniforms, picking up random office supplies, or even driving to make the daily bank deposit, it is probably costing at least some of your employees to work.  So, the question becomes whether, when and for what costs employees should be reimbursed by the company. 

 Various internet sites are filled with questions posted by employees as to their “rights” when it comes to being reimbursed for business expenses.  Answers to questions vary, but for most employers the question basically boils down to a review of Fair Labor Standards requirements, state law and current policy statements on the subject.

 Federal Requirements – Minimum Wage Issues

 The Fair Labor Standards Act only requires expense reimbursements for employees when the expense offsets the employee’s hourly wage and results in an effective hourly rate that falls below the minimum wage standard. For example, a delivery driver making $7.25 an hour who is not afforded a company owned vehicle for deliveries, must receive a mileage reimbursement at the rate of at least $ 56.5 cents per mile. However, if that same driver makes $15 per hour and drives 15 miles in the course of a workday, an expense reimbursement is not required as the effective hourly wage (actual wages less calculated mileage) is $13.94 per hour.  For example: ($15 per hour * 8 hours) – (56.5cents per mile * 15 miles) = $13.94 per hour.

 State Requirements

 With only two exceptions, state law is silent on an employer’s obligation to reimburse business related employee expenses.  California requires employers to reimburse their employees for business related expenses; however, Massachusetts only requires mileage reimbursements. California’s covered expenses include, but are not limited to:

 ·         Travel required for making bank deposits,

·         The purchase of supplies,

·         Travel between business sites,

·         Travel required for the delivery of inventory or equipment.

 Best Practices

 Regardless of your business location or state wage and hour law, following best practices in the area of expense reimbursement may mean the difference between attracting/retaining talented employees or increasing other expenses related to high turnover rates. Expense reimbursement policies should detail which expenses are covered, and to what extent. For example, if your policy covers a computer case for those employees who frequently travel, a limit of $100 (or whatever your organization defines as “reasonable”) can be put in place.  Expense policies should include the use of proper documentation, authorization, and an appropriate time requirement for submitting the reimbursement request.

 Policy Considerations

 An expense reimbursement policy does not need to follow a “one size fits all” approach. Depending on the organization’s culture and the individual employee’s business travel or expenditure requirements, the policy can be tailored to fit business needs without causing the organization  undue hardship to the company.   Things to consider include:

 ·         Job responsibilities

·         Employee classification (executive, professional, etc.)

·         Company culture

 Additionally, expense reimbursements can be negotiated at the time of the employment offer. For some employees, reimbursement of out-of-pocket expenses may be an important consideration. For example, an executive level sales position may require a great deal of overnight travel which may require the reimbursement of meals. But, company expense for meals away from home can be limited by imposing a per diem limit.  Other expenses to consider include:

 ·         Cell phone reimbursements – Does the company issue cell phones for work purposes?  If not, what percent of an employee’s cell phone bill is the organization prepared to reimburse?

·         Internet – Which employees work from remote locations?  Is this a requirement of their position? How much of their internet expense is for work and personal use?

·         Travel Upgrades – Does the company want to pay for an upgrade to first class for those employees who spend most of their time traveling to client sites?

·         Personal Equipment – If it is used for work purposes, is the company willing to reimburse the expense of iPads or other personal electronics?  What about app’s that allow the employee to remotely access their computers?

Irrespective of the type of expenses the company is willing to reimburse, and for which employees, the key is to implement a policy that is well thought out and clearly communicated. The best approach in developing an expense reimbursement policy is to solicit feedback from multiple department managers including finance, HR and operations.

Learn more about C3 Advisors, LLC at www.c3adviors.com.  Find us on Facebook and LinkedIn.  Subscribe to our newsletter by emailing debd@c3advisors.com.