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Some states have laws that require employers to reimburse employees for the costs of necessary job expenses. This includes the business use of an employee’s personal cell phone. While there is no federal law that requires this work expense reimbursement, some employers voluntarily provide it in states where it is not required.
What is the federal law for work-related reimbursements?
Federal employment law generally does not require employers to reimburse employees for work-related expenses.
The Fair Labor Standards Act (FLSA) is silent on reimbursing employees for business expenses. The only time federal law requires a reimbursement is if it would bring the worker’s wages beneath the applicable minimum wage.
Are there state laws that require them?
A handful of states have passed labor laws that require employers to reimburse workers for work-related expenses that they have incurred. These states are:
- California,[1]
- Illinois,[2]
- Iowa,[3]
- Massachusetts,[4]
- Minnesota,[5]
- Montana,[6]
- New Hampshire,[7]
- New York,[8]
- Pennsylvania,[9] and
- District of Columbia.[10]
The protection afforded by these laws, however, depends on the state.
Do California employers have to reimburse workers for personal cell phone use?
In California, Labor Code 2802 requires employers to reimburse workers for all reasonable expenses necessary for doing their jobs. This includes reimbursing employees for any business-required use of their personal cell phones. [11] [12]
Employees are entitled to a reimbursement that reflects a reasonable percentage of the actual cost of their cell phone bill. They are entitled to a partial payment of their cell phone expenses, even if their job did not require them to spend more than they ordinarily would have for their cell phone use. The reimbursement is required regardless of their cell phone plan – even if they had unlimited minutes or unlimited data, they are still owed a percentage of their bills that reflects their work-related use.[13]
The purpose of this broad reimbursement obligation in Labor Code 2802 is to prevent companies from passing their business expenses on to their workers and saving the employer’s business some money.
Employers in California are free to pay employees a stipend or to increase their regular wages, rather than directly paying an expense reimbursement for their work-related cell phone usage. An expense policy like this, though, has to distinguish between what is paid as a regular wage and what is reimbursement for employee expenses.[14]
Employers cannot get their workers to waive their rights to reimbursements for work expenses in California. Any provision in an employment contract that tries to do this is null and void.[15]
Employers can have their own cell phone reimbursement policies as long as these policies do not contradict federal or state law.
Can employers make their own cell phone reimbursement policy?
Yes, employers can create their own policies and rules for reimbursing employee cell phone use for business purposes. The policies, though, cannot contradict state or federal law.
Many employers adopt “bring your own device,” or BYOD, policies for employee cell phone use. In states that require reimbursement for work-related calls or for business use of the cell phone, these policies often have to outline how the reimbursement will be calculated. Many policies simply provide a flat payment for work-related phone use.
Some employers avoid reimbursement obligations by providing mobile devices for their workers. These corporate-owned phones can be excluded from the worker’s wages as a working condition fringe benefit if the phone was provided for non-compensatory business reasons. Any personal use of these employer-provided phones can be treated as a de minimis fringe benefit, and also excluded from the worker’s wages.[16]
Are these reimbursements taxed as income?
The tax treatment for reimbursements made for business-related cell phone use depends on 3 factors:
- Whether the phone use was necessary and ordinary for the job,
- Whether the employee returned any excess reimbursement within a reasonable amount of time, and
- Whether the employee substantiated the expense, often with receipts, expense reports, or the phone bill, within a reasonable amount of time.[17]
If these 3 conditions are met, then the reimbursement can be deducted from the employee’s taxes.
If any of them are not met, then the reimbursement is taxable income.
[1] California Labor Code 2802.
[2] 820 Illinois Compiled Statute 115/9.5.
[4] Massachusetts General Law Chapter 149, § 148A and Fraelick v. PerkettPR, Inc., 83 Mass. App. Ct. 698 (2013).
[5] Minnesota Statute 177.24(4)-(5).
[7] New Hampshire Revised Statutes 275:57.
[10] D.C. Municipal Regulation Title 7, Section 910.1.
[11] California Labor Code 2802. See also Herrera v. Zumiez (9th Cir. 2020) 953 F.3d 1063.
[12] Cochran v. Schwan’s Home Service, Inc., 228 Cal.App.4th 1137 (2014).
[13] Cochran v. Schwan’s Home Service, supra.
[14] Gattuso v. Harte-Hanks Shoppers, Inc., 169 P.3d 889 (2007).
[15] California Labor Code 2804.
[17] See IRS Publication 5137 (Rev. 2-2020).
About the Author
Neil Shouse
A former Los Angeles prosecutor, attorney Neil Shouse graduated with honors from UC Berkeley and Harvard Law School (and completed additional graduate studies at MIT). He has been featured on CNN, Good Morning America, Dr Phil, The Today Show and Court TV. Mr Shouse has been recognized by the National Trial Lawyers as one of the Top 100 Criminal and Top 100 Civil Attorneys.