California Labor Code § 2802 – What expenses are employers required to reimburse?

Posted on January 13, 2023

California Labor Code § 2802 is the statute that requires employers to reimburse workers for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” Employers that fail to do so can face a wage and hour lawsuit.

The statute allows employees to recover attorneys’ fees, in addition to reimbursement.

If the violation is widespread, employees can form a class action.

Are California employers required to reimburse workers for business expenses?

Yes, California Labor Code section 2802 mandates employer reimbursements for work-related expenses that are incurred by their employees.

The purpose of this section is to prevent California employers from merely shifting the necessary expenditures of running a business onto their employees.[1]

Employers cannot get their employees to waive their right to these reimbursements. Even if there is a provision in the employment contract that tells employees they have no right to reimbursement, that provision is null and void and will not be enforced in court.[2]

Employers who fire workers because they have invoked their rights to be reimbursed can be liable for wrongful termination.

These requirements do not extend to other states, though. Federal employment law does not require reimbursement for work-related expenses unless the costs would bring an employee’s earnings beneath the minimum wage.

What reimbursement does Labor Code 2802 require?

To be eligible for reimbursement under California Labor Code 2802, the expense has to be both reasonable and necessary for the employee to do his or her job. The employee has to incur the costs as a direct consequence of his or her job duties.

The details and requirements of an employee’s job will determine whether an expense is work-related and eligible for reimbursement. Many employers have reimbursement policies that set out which expenses are eligible.

Common work-related expenses that are eligible for reimbursement can include:

• travel expenses,
• business use of a personal cell phone,
• fees for attending conferences,
• costs of a work uniform,
• expenses related to entertaining business associates,
• driving costs, including a mileage reimbursement for distance traveled and tolls paid in a personal vehicle,
• costs associated with using a personal cell phone for job duties,
• postage, and
• training or education costs.

Some of these expenses are often only partially work-related, like the cell phone bills for an employee’s personal phone that is frequently used for business purposes. In these cases, a percentage of the employee’s actual expenses can be reimbursable. That percentage has to reasonably reflect how often the expense is work-related.[3]

How does this affect California employees doing remote work?

An employee’s right to be reimbursed for business expenses has become more important since the coronavirus pandemic. Many workers continue to work remotely, which means having to buy home office and telecommuting equipment. Because that equipment is reasonably necessary for the employee’s work, it can be eligible for reimbursement.

Some common reimbursable expenses for remote work include:

• office equipment, like chairs and desks,
• printing equipment, including the printer, paper, and ink,
• the costs of online subscriptions, like a paid Zoom account,
• home utilities, like air conditioning and heating, and
• home internet bills.

Because these are business expenses, they can be reimbursed by the employer. When the employer reimburses their employee, though, the company owns property that was purchased. If the employee is discharged, he or she may have to hand over what was bought, as it is company property.

Are Labor Code 2802 reimbursements taxable as income?

When an employee receives reimbursement for a work-related expense, it is tax-deductible as a work expense if:

• the expense was an ordinary and necessary expense for their job,
• any excess reimbursement was returned to the employer within a reasonable amount of time, and
• the actual cost of the expense was substantiated by the employee within a reasonable amount of time.^[4]

If any of these conditions are not met, then the reimbursement is taxable income.

Can my employer increase my salary rather than reimburse expenses?

California employers can comply with state labor law by increasing the employee’s compensation, rather than directly reimbursing them for the reasonable costs of their business expenses.

The California Supreme Court has said that this method of repayment is sufficient, so long as there is a reasonable method for determining what part of the wage increase is for reimbursing business expenses. Employees cannot avoid their reimbursement obligations by merely increasing the worker’s pay. Doing so without itemizing what portion was for reimbursement would make it impossible to tell whether the employee was being compensated enough for their work-related expenses. This would make it unreasonably difficult to enforce the law.[5]

Are there special rules for hospital workers?

Starting in 2021, many hospital workers are entitled to reimbursements for costs associated with workplace training requirements.[6]

Those workplace trainings can be either

• employer-provided, or
• employer-required.

It includes programs like:

• residencies,
• orientations, and
• competency validations or tests.[7]

Any expenses incurred by the employee or job applicant for these programs has to be reimbursed by the hospital.

However, some programs are not covered by the reimbursement requirement. These include:

• license, registration, or certification requirements to practice at a specific classification, and
• training or education programs taken solely at the employee’s discretion.

Only general acute care hospitals are covered by this requirement, though. These are hospitals that have a duly constituted governing body and provide around-the-clock inpatient care.[8] The law covers employees who work in roles that provide direct patient care in these hospitals. It also covers job applicants for those roles.

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[1] Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137. See also Bowerman v. Field Asset Servs., Inc. (9th Cir. Cal. 2022), 39 F.4th 652; Becerra v. McClatchy Co. (Cal. App. 5th Dist. 2021) 69 Cal. App. 5th 913.

[2] California Labor Code 2804 LAB.

[3] Cochran v. Schwan’s Home Service, supra.

[4] See IRS Publication 5137 (Rev. 2-2020).

[5] Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 169 P.3d 889.

[6] California Labor Code 2802.1 LAB.

[7] California Labor Code 2802.1(a)(2) LAB.

[8] California Health and Safety Code 1250 HSC.