Summary:
- In California, reimbursing employees for work-related personal cell phone use is more than just a perk. It’s the law.
- Compliance with cell phone reimbursement laws may be challenging as there are ambiguities about reasonable compensation amounts.
- Employees can use software like Workforce.com on computers to perform administrative work duties, avoiding the need for cell phone reimbursements.
- Compliance-specialized HR software like Workforce.com can also handle distributing reimbursements and stipends if needed.
The lines between personal and professional mobile phone use are becoming increasingly blurred. Many employees use their personal devices for work-related purposes, whether answering emails, calling clients and team members, coordinating projects, or accessing company portals. If this is the case, who should foot the bill?
California addresses this overlap with Labor Code 2802, a law that attempts to clarify who should cover the costs of using a personal cell phone for work purposes.
So what does this law entail, and how does it protect employers and employees? Let’s take a closer look to help you navigate this legal dilemma in the Golden State.
What is California Labor Code 2802?
California Labor Code 2802 mandates that employers fully reimburse employees for any job-related expenses they may incur; this includes all costs related to using a personal cell phone for work duties. This law protects employees and ensures employers are not sidestepping operating expenses.
So, if your employees use their cell phones to call clients, communicate with suppliers, manage company platforms, or perform other job-related activities, they may be entitled to reimbursement – depending on your state.
Clearly, this is more than just a job perk. It’s the law, and employers in California must comply. But this is much easier said than done due to the ambiguous nature of the way the labor code was written. The critical question here is how to measure what qualifies as reasonable compensation. And how do you even begin to job-cost phone-related activities?
The Cochran vs. Schwan’s Home Services Case
If your employees have unlimited call minutes, do you still need to reimburse them for cell phone use? Yes, you should. The court decision for Cochran vs. Schwan’s Home Services case reiterates why this is the case.
In this class action suit, the plaintiff claims that California Law 2802 is violated because they use their cell phones for work-related calls in their job duties for a food delivery business but are not reimbursed for such costs. However, the defendant argued about the appropriateness of the class certification. According to them, the employees have varying reimbursement claims. They also countered that some employees didn’t incur additional costs because they were on a plan with unlimited minutes or included in a family plan.
The California Court of Appeals ruled that employees are still entitled to reimbursement even if they’re on a mobile plan with unlimited minutes or a family plan. The issue is about properly reimbursing employees for using their personal cell phones to perform work duties and not about whether or not employees incur additional expenses on top of their plan for making work-related calls. Since the employer benefits from these calls, they should cover the expense as part of their business operations.
So, the next question is how much? The court didn’t mandate a specific amount by which employees must be reimbursed, making the ruling pivotal for this piece of California law and the employers that must comply. Such uncertainty makes it even more challenging for employers to determine how much they should reimburse employees for cell phone usage.
How do you calculate reasonable reimbursement?
Since the law doesn’t state an exact dollar amount or formula by which you should reimburse employees for cell phone use, how do you identify that sweet spot?
According to a study by Oxford Economics and Samsung, most company reimbursements for mobile expenses range between $30 to $50 per month. On average, the monthly amount is $40.20 per employee. In addition, 98% of companies surveyed provide full or partial stipends to cover employee mobile expenses.
The reasonable reimbursement or stipend amount depends on your operations and how crucial mobile devices are for your employees’ tasks. According to the same study, 53% of executives said employees need mobile phones to do their jobs well, and 57% said mobile devices are key to getting work done.
Figure out how much of your employee’s screen time is devoted to work. For instance, if 50% of their daily phone usage is spent on job-related activities, you can consider providing a stipend or reimbursement equal to half of their monthly plan.
On the other hand, you can opt for exact reimbursement based on their usage if they can highlight specific line items in their phone bill that are directly related to work. However, this can be challenging since most mobile plans are bundled or have unlimited call minutes or data.
The key to determining a reasonable reimbursement amount is to ensure that you’re reimbursing what employees are due while still not overpaying.
What are the methods for reimbursement?
As with the amount, the law lacks specificity regarding how employers should distribute reimbursements. At the end of the day, it is really up to the employer.
One way is to follow a standard reimbursement process through HR. Staff submit receipts and documentation so that the employer can compensate them based on what’s stated in their invoice. However, this can cause additional admin work for both the employer and employee.
To simplify things, an employer ditch the reimbursement method in favor of a monthly stipend to cover cell phone-related expenses. But what happens if the cell phone expense exceeds the allotted stipend? In this case, it’s always good to have a backup reimbursement process in place. It is also worth noting that overspending is a very real risk with a stipend since expenses aren’t being explicitly tracked.
In short, for simplicity and less headache, go for a stipend. To avoid the risk of overspending, choose a reimbursement process.
Of course, employers could avoid all of this hassle by simply giving employees work phones on a separate company phone plan. However, this is obviously expensive and requires additional IT and security support. This option should really only be considered for the most obvious use cases where cold calling is a routine part of the job.
When should employees receive the reimbursement?
This is also determined by the employer and usually weighed against factors such as how often cell phones are used for work. It can be distributed monthly, quarterly, or annually or along with payroll.
Are cell phone reimbursements taxable?
Cell phone reimbursements are not considered income or an amount added to an employee’s wage, but they cover expenses for cell phone use for business purposes. So, technically, they are not part of an employee’s earnings. However, they are usually considered non-taxable as long as they are given for “substantial non-compensatory business reasons,” as stated by the IRS.
Again, the key here is to ensure that employees determine a reasonable amount to reimburse. For instance, if your employee’s monthly bill is $100 and you pay $105 as reimbursement for cell phone use, the excess of $5 should be returned to you, or they would need to file it as income, which can be taxable.
The essentials of a reimbursement policy
The key to complying with the California Labor Code 2802 is to have a policy in place. As you create this for your organization or revisit your existing rules, you must ensure that it covers the following:
- Who’s eligible for reimbursement? Look at your operations and determine which roles rely heavily on their personal cell phones to get work done. For instance, employees who usually work at the company headquarters with access to company resources are less likely to use their mobile plan than those who work in various locations and are more likely to use their cell phones for work-related purposes while on the go.
- What type of usage warrants reimbursement? Specify what work-related tasks done on mobile entails because it’s best to define what constitutes business and personal use. Typically, work-related usage includes company calls, emails, and accessing company platforms.
- What is the documentation needed? List the documents employees must submit, such as receipts, invoices, or billing statements.
- How will the reimbursement be computed? State clearly in your policy whether you will reimburse down to the cent or assign a stipend.
- How will the reimbursement process go? Detail the steps involved so that your employees will know how to proceed.
When you create a reimbursement policy, see that you’re using clear language and be specific as much as possible. Keep it accessible to all employees, and make sure to update it if need be.
Other states with reimbursement laws
There is no federal law that requires employers to reimburse employees for work-related expenses. However, the FLSA states that you might need to if those expenses cause wages to go down below minimum wage.
Aside from California, here are other places that have laws on reimbursing employees for work-related expenses:
District of Columbia – DC Municipal Regulations Section 7-910
On top of wages, employers must also “pay the cost of purchasing or maintaining any tools required of the employee in the performance of the business of the employer.”
Illinois – Illinois Wage Payment and Collection Act Section 9.5
An employer must pay back an employee for any necessary costs or losses the employee has while doing their job and directly related to work for the employer. ‘Necessary costs’ include all reasonable expenses or losses required for the job that mainly benefit the employer.
Iowa – Iowa Code 2024 Section – 91A.3(6)
Any expenses an employee has that are approved by the employer must either be paid back before they’re spent or within 30 days after the employee submits an expense claim.
Minnesota – Minnesota Statute 174.24 Subd. 5
Once employment is ended, employers must reimburse the total amount deducted directly or indirectly for any items listed in the previous subdivision except for uniform or clothing rental and maintenance by motor vehicle dealers. Once reimbursed, employers can ask the employees to return any items they the employee provided reimbursement for.
Montana – Montana Code 39-2-701
An employer must cover an employee’s necessary expenses or losses that happen while doing their job or following the employer’s orders.
New Hampshire – New Hampshire Revised Statutes Section 275:57
If an employee spends money for work-related expenses at the employer’s request, and these expenses aren’t normally covered by the employee’s wages or advance payments, the employer must reimburse them within 30 days after the employee provides proof of payment.
New York – New York Labor Law Section 198 C – Benefits or Wage Supplements
Besides any other penalties, if an employer agrees to pay benefits or wage supplements to employees, but fails to make the payments within 30 days, they can be charged with a misdemeanor.
North Dakota – North Dakota Century Code Section 34-02-01
An employer must reimburse an employee for any necessary expenses or losses from doing their job or following the employer’s orders, even if those orders were illegal, unless the employee knew they were illegal at the time.
Pennsylvania – Unreimbursed Business Expenses
Some employees might be able to subtract certain job-related expenses from their state income tax. Qualified expenses may include travel and mileage, certain mobile phone use, and office supplies.
South Dakota – South Dakota CL 60-2-1
An employer must cover any necessary expenses or losses an employee has while doing their job or following the employer’s orders, even if the orders were illegal, unless the employee knew they were illegal at the time.
Seattle – Wage Theft Ordinance
Seattle employers must pay employees on a regular pay day. Compensations include wages, tips, and reimbursements for expenses incurred on behalf of the employer.
Massachusetts
While Massachusetts law doesn’t explicitly mention about expense reimbursement, the state’s Attorney General strongly recommends employers to cover necessary and unavoidable employee expenses.
Handle cell phone reimbursements with ease
Worried about cell phone reimbursement logistics? Maybe it is time you consider leaving it to the experts.
Workforce.com is a powerful HR tool that covers time and attendance, scheduling, and payroll — helping you comply with obscure labor laws every step of the way. Employees can check their shift schedules, clock in for work, update their direct deposit information, and much more, all in one place.
Workforce.com is uniquely equipped to handle all things related to California labor compliance, including cell phone reimbursements. Within the system, you can easily classify employees eligible for reimbursement with special tags, provide them with a way to upload necessary documentation, and ensure that they receive their reimbursements.
Worried about a scheduling and time clock app adding to your reimbursement bill? Think again. Workforce.com offers flexibility since staff can access it from computers too—devices not tied to personal cell phone plans. This can help minimize or even eliminate the need for cell phone reimbursements entirely. Regardless of how big your HR team is, you can rest assured that crucial admin tasks are taken care of.
Discover how Workforce.com can help you with payroll, reimbursements, and more. Book a demo today.
