The Employer’s Wage and Hour Advisor

The federal Fair Labor Standards Act (FLSA) does not automatically require employers to reimburse employees for business expenses.  Instead, the FLSA only requires employers to pay at least the federal minimum wage to nonexempt employees.  Consequently, under federal law, a wage violation only arises from business expenses if the costs of such expenses reduce compensation below minimum wage.  In states with no specific laws requiring employee business expense reimbursement, the relatively low monthly expenses associated with remote work (e.g., internet, telephone, electric, office supplies and other costs associated with working from home) generally only effect minimum-wage or close to minimum wage workers.  As most remote workers typically make significantly more than minimum wage, these minor additional expenses do not normally give rise to wage claims under federal law for nonexempt employees. 

Yet, the above is not the end of the analysis.  The answer to the “reimbursable expense” question can be very different under state or local laws.  Several jurisdictions have passed laws requiring employers to reimburse employees for business expenses, such as California, Illinois, Iowa, Massachusetts, Montana, New Hampshire, North Dakota, South Dakota, the District of Columbia, and Seattle, Washington.  While these laws vary in their requirements, and must be considered on a case-by-case basis, some of them create very broad reimbursement obligations.  For example, in California and Illinois, employers must reimburse employees for all “necessary” expenditures.  Such laws have been interpreted [in California] as including a reasonable percentage of internet and cellular telephone charges – even where the employee’s overall costs have not increased.

Because of these divergent requirements, it is possible, for example, for an employer based in Indiana or Michigan to inadvertently violate Illinois wage and hour laws when it permits employees who may live over the Illinois state line to work from home without reimbursing them for all necessary business expenditures.  Thus, it is imperative for businesses to monitor the location of each employee’s remote work to ensure proper compliance with applicable laws. 

The COVID-19 pandemic has caused innumerable legal issues to rise to the surface.  An employer’s obligation to reimburse employees for business expenses associated with remote work is just one of many issues the business community must consider.  Ongoing discussions with labor and employment counsel also may be prudent to ensure compliance in applicable jurisdictions.