Employee Expense Reimbursement – Changes in Illinois Law

Effective January 1, 2019, the Illinois Wage Payment and Collection Act (IWPCA) now requires employers to reimburse employees for “all necessary expenditures and losses incurred within the employee’s scope of employment and directly related to services performed for the employer.” The amendment to the act (820 ILCS 115/9.5) defines “necessary expenditures” as “all reasonable expenditures…required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.” Prior to the amendment, expense reimbursements were not addressed in the IWPCA regulations.

Highlights of the Act

Employees are required to submit all necessary reimbursement requests with appropriate supporting documentation within 30 days after incurring the expense, unless the employer’s written reimbursement policy provides for additional time. If an employee is unable to produce supporting documentation for the expenses (whether lost or nonexistent), the employee must submit a signed statement regarding such receipts. The employer will be required to accept the employee’s signed statement in place of the required receipts. The employer must reimburse all “necessary” expenses that are submitted within 30 days after they are incurred. Lastly, employers are not required to reimburse employees for losses due to an employee’s own negligence, normal wear, or losses as a result of theft unless the employer’s negligence caused the theft.

What Makes Illinois’ Law Different

The IWPCA differs from other states that require employers to reimburse employees for their employment-related expenses. The IWPCA permits employers to maintain written expense reimbursement policies that compensate employees for less than the full cost of the expenditure, which is not present in other state statutes.

In addition, the policy may not provide for “de minimis” reimbursement or no reimbursement at all. However, an employer’s policy may set specifications or guidelines for expenditures, and the employer may deny reimbursement if these guidelines are exceeded. Put simply, employers may maintain policies that reimburse employees for less than 100 percent of the expenditure amount so long as the employer provides some reimbursement and the reimbursement is more than “de minimis.”

The “de minimis” threshold is not defined in the status and is subject to court interpretation. It is suggested that caps be set at a reasonable level based on local market where the expense is incurred until further guidance is issued.

Further, if the employer “authorized” or “required” a specific expenditure (those two terms are undefined in the amendment), it may not deny reimbursement, even if the type or amount of the expenditure otherwise would violate or exceed the employer’s policy.

Next Steps

Employers should create or review their existing expense reimbursement policies to ensure compliance with the amended law. The policies must include the methods of reimbursement and define a procedure whereby employees can submit reimbursement requests. Additionally, the policies should:

  • Contain established approved expenditure rates, perimeters and terms for lodging, rental car, travel, mileage, etc.
  • Include definition of approved travel and travel providers
  • Outline preapproval travel requirements and approval process
  • Be explicit about what the company will and will not reimburse
  • Have established levels of reimbursement for equipment required for the job
  • Define the reimbursement limits for business expenses, such as personal cell phone usage or at-home internet
  • Contain common expense categories that employees might incur or ask about
  • Have language stating the advance approval process an employee must obtain before incurring any expense not expressly provided for in the policy
  • State the deadline for employees to submit reimbursement requests
  • Require necessary documentation to support each expenditure
  • Provide instructions on submitting a signed statement in place of any missing required supporting documentation
  • Include instructions for submitting reimbursement requests, the means to submit (paper, electronic, etc.) and to whom it should be directed
  • Provide a minimum of 30 days for employees to request expense reimbursement
  • Be mindful of the “de minimis” threshold
  • Ensure that reimbursements reasonably compensate the employee for the expenditure
  • Contain information on the appeal process for the denial of a reimbursement request

Once the new policy is created, employers should review any reference material that mentions expense reimbursements, such as employee handbooks, remote working agreements, telecommuting policies and other processes, to ensure they are updated and reflect the new guidelines.

For example, if you have employees who occasionally elect to work from home for their personal convenience, you might state in your policy that working from home is not required. In addition, you may state that you will not reimburse employees who elect to work from home for home phone or internet services, as employees have the option to work in the office.

Another example to consider: if your company uses an app-based timekeeping and scheduling system that employees access on their personal smartphones, having a smartphone with data service is arguably a requirement of the job. If that is the only way employees can record their time or check their schedules, you may have to reimburse your employees for at least a portion of the cost of their device and the monthly service. However, if you provide an alternative, like an on-site kiosk or local phone number, then it could be argued having a smartphone is a convenience and not a requirement.

It is also recommended employers revisit job descriptions, offer letters, as well as employment contracts to determine whether the job duties may encourage employees to incur personal expenditures that they consider necessary to carry out their employment duties. It is recommended that job descriptions be revised to specifically state the expenditures necessary for the job, and what necessary items and/or equipment will be furnished by the employer. Read more about using your website as an effective recruiting tool here.

Conclusion

In summary, employees are entitled to reimbursement under the new law only if they comply with the employer’s written expense reimbursement policy. Because of this, it pays to be explicit; a well-written expense reimbursement policy may help prevent expensive litigation.

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By |2019-01-30T09:56:50+00:00January 30th, 2019|Human Resources|0 Comments

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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