Expensing the Unexpected: What Employers Need to Know About Employee Expense Reimbursement

As summer comes to a close, many employers begin preparing for one of the busiest corporate travel seasons of the year. October consistently brings increased conferences, client meetings, and business travel, which also means a higher volume of employee expense reimbursement requests.

At the same time, employee expense reimbursement has become more complex. Across the country, states and local jurisdictions are increasingly regulating what employers must reimburse, particularly as remote and hybrid work arrangements continue to evolve. Failure to properly reimburse required business expenses can create wage and hour risks, employee relations concerns, and even litigation exposure.

To help navigate this changing landscape, employers should consider the following best practices.

Know Where Your Employees Are Located

For employers with a multistate workforce, understanding where employees perform their work is often the first step toward compliance.

An employee’s work location can significantly impact reimbursement obligations. Some states have broad reimbursement requirements that extend beyond traditional travel expenses.

For example, employers in California and Illinois must reimburse employees for all “necessary expenditures” incurred. In practice, this means that most expenses incurred because of performing job duties are considered reimbursable. Other states and municipalities, including Montana, Washington, D.C., North Dakota, and South Dakota, have similar requirements.

Don’t Overlook Remote Work and Personal Device Expenses

Remote and hybrid work arrangements continue to raise important reimbursement considerations. Employers should evaluate whether home internet service, office supplies, printing costs, or other remote work expenses may be reimbursable under applicable state law and company policy.

Employers should also consider whether employees are using personal devices for business purposes. Reimbursement obligations may arise when employees are required to:

• Clock in and out through a mobile application
• Use multi-factor authentication on a personal device
• Access company email or business systems through a personal phone
• Conduct business communications through text messages or other applications
• Use a personal device as a wireless hotspot while traveling

A monthly cell phone stipend or similar reimbursement arrangement may help address these costs and reduce compliance risk.

Evaluate Vehicle Reimbursement Practices

Employees who use personal vehicles for business purposes may incur costs beyond fuel, including maintenance, insurance, depreciation, and wear and tear.

Providing mileage reimbursement is generally considered best practice when employees use personal vehicles for work-related travel. Organizations with employees who regularly visit clients or work in the field may also want to consider a vehicle allowance program.

Maintain a Clear Travel Expense Policy

A well-written travel expense policy helps establish expectations and reduce disputes. At a minimum, employers should address:

• Airfare and lodging requirements
• Meal and per diem guidelines
• Appropriate transportation methods
• Required approvals
• Documentation and receipt requirements

The policy should also identify expenses that are not eligible for reimbursement, such as personal travel extensions, expenses incurred by family members, parking tickets, traffic fines, and personal entertainment expenses.

Create a Consistent Reimbursement Process[1]

Having a reimbursement policy is only part of the equation. Employers should also establish a clear process for submitting, reviewing, approving and paying expenses. Consistency in administration is critical to reducing both compliance risks and employee frustration.

Consider addressing:

• Required pre-approvals
• Documentation standards
• Submission deadlines
• Approval authority levels
• Reimbursement timelines

The policy should also clearly state that submission of false or fraudulent expenses may result in disciplinary action, up to and including termination.

Avoid Shifting Business Costs to Employees

As a general best practice, for both morale and compliance purposes, employers should avoid requiring employees to bear the cost of tools and resources necessary to perform their jobs. This may include laptops, software subscriptions, specialized equipment, business-related technology expenses, and other materials required to perform assigned duties.

As workplace technology continues to evolve, employers should periodically evaluate whether newer expenses, including software, internet upgrades, and AI-enabled workplace tools, should be addressed through existing reimbursement practices.

Next Steps

Now is an ideal time to review your organization’s expense reimbursement practices. A proactive review can help reduce compliance risk, promote consistency, and protect employee morale.

Your Engage Human Resources Consultant and Human Resources Business Partner can help evaluate your current policies and recommend updates tailored to your workforce and operating location.

[1] There may also be tax considerations when setting up a reimbursement process.  It is recommended to review IRS requirements or consult a tax professional when putting a process in place.