California employers are required to reimburse their employees for “all necessary business expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” (See California Labor Code section 2802.)  Employers failing to properly reimburse their employees for work-related expenses risk exposure for the unreimbursed expense, attorneys fees, and possibly a Private Attorney General (PAGA) claim or class action if the practice of not reimbursing employees is widespread.  Importantly, employers are obligated to proactively determine whether an employee is incurring expenses and cannot simply rely upon the argument that the employee never requested reimbursement. For example, if an employee is allowed to or required to work from home, employers should know that cell phones may be required, or home computers are needed.  Thus, employers should have both a remote working policy and an expense reimbursement policy spelling out the types of reimbursable expenses and the procedures for seeking reimbursement. 

Reimbursement for Flat Cost and Usage Rate Expenses

The amount of reimbursement to be paid to an employee must be reasonable and constitute full reimbursement for the expense incurred.  Flat cost expenses are fairly easy to assess regarding how much to reimburse. Upon receiving a receipt of purchase, an employer can assess if the product was necessary (such as a home computer or printer) and reasonably necessary to perform the duties.  For example, if an employee purchased a top-of-the-line computer which is beyond what is needed to perform the work in question, an employer could question and refuse to pay the full price of the purchase product.  On the other hand, more complex reimbursement issues arise when employees are required to incur expenses based upon rate of usage such as home Wi-Fi or cell phone use.  Below is a list of the typical types of expenses, based upon flat and usage rate, that employers must reimburse and how they should be calculated.

Personal Vehicle Usage: Employers must reimburse employees who use their personal vehicles in completing job duties.  The best method to reimburse is to pay out based upon mileage.  While not certain, relying upon the IRS mileage rate (currently 62.5 cents per mile) will suffice. Note that the IRS mileage reimbursement rate changes annually and sometimes, like this year, in the middle of the year.  Alternatively, an employer could reimburse vehicle usage based upon actual costs incurred including repairs and percent of usage by the employee of the car for personal versus business use. However, using this latter approach is risky and often inaccurate and therefore the best method to use is the mileage reimbursement method.

Personal Cell Phone Usage: Employers must reimburse employees for the mandatory usage of personal cell phones for company business.  Determining how much of the phone bill is related to work can be challenging but its important that the employer reimburses the appropriate amount. One method of determining the percentage or amount of the employee’s cell phone bill should be reimbursed is to request a copy of their personal cell phone from before they began working with the organization and compare it to their cell phone bill after they commence their employment.

Home office/remote work-related expenses: These types of expenses incurred by employees include increased Wi-Fi due to working from home, equipment such as printers, computer monitors, supplies such as printing paper, pens and other instruments and technology that are needed to perform the job.  Determining whether something is “necessary and reasonable” will depend on a number of factors, including the employee’s job duties (on paper and in practice), and what is needed to perform their job, and the actual costs incurred by the employee.  

Legal Fees: Employees named in a lawsuit based on job-related conduct must be reimbursed for incurred defense fees.

Stolen Personal Property: Employers must reimburse employees for personal property stolen from the employer’s premises. 

Legal Judgments: Employers are required to reimburse employees for any legal judgments entered against them for conduct arising out of their employment.

Employee Uniforms & Cal-OSHA/OSHA Protective Apparel: Under California law, employees must be reimbursed for uniforms or clothing qualified as protective apparel as regulated by Cal-OSHA or OSHA. However, employers are not required to reimburse employees for uniforms that are generally usable in the employee’s occupation, such as a nurse’s plain white uniform, a chef’s white apron, or slip-resistant shoes.

Hand tools: Employers must reimburse employees the cost of required hand tools necessary for the job if the employee is not paid at least two times minimum wage. 

Implementing an Employee Expense Policy

In view of an employer’s obligations to correctly reimburse employees for business-related expenses, employers should establish an expense reimbursement policy.  The policy should cover and include a number of key issues:

1. The process and forms to be followed and used related to requests for reimbursement including a deadline for submitting a request for an expense purchased by the employee.
2. Require advance approval of any expenses whenever possible.
3. Establish the specific known equipment needed for the employee(s) position and the manner that the equipment and tools should be obtained (through the employer or via the employee purchasing and submitting a receipt for the expense).
4. Where the employer pays for equipment for an employee, the equipment belongs to the employer.

Remember that although an employer cannot know if an expense has been incurred if they are notified by the employee, courts have held that employers are frequently on constructive notice of the need for reimbursement such as if a car is used for work, or work is being performed at home.  This is why implementing an appropriate expense reimbursement policy is critical.  If you have any questions about reimbursable expenses or need to institute a policy regarding expenses, contact our employment attorney Scott Liner at [email protected].