The coronavirus pandemic has changed the way we work – for some companies, permanently. According to Stanford University, in June of 2020, 42% of American workers reported that they were working entirely from home while only 26% reported that they were still reporting to work in person. This shift to a work from home (WFH) lifestyle is not happening without some upheaval of business processes, though, and for many companies, this could be the new normal. Even Facebook has said that roughly half of their 48,000 employees could be working remotely in the next five to 10 years.
Working from home creates a lot of extra expenses for employees that you may not expect. For instance, workers are using significantly more gas, water and electricity than they normally would if they were spending all day out of the house. On top of that, employees also need to set up home offices – that means buying the necessary equipment and furniture they need to fulfill their job responsibilities. In addition to these new expenses, WFH arrangements may also change the way you approach traditional expenses such as mileage reimbursement.
For many employers, working remotely is a whole new ballgame, one in which they’re still figuring out the rules. As you work out the kinks, you should be updating your expense reimbursement policy for the WFH world to keep everyone on the same page.
WFH: What Employers Need to Know
Since the federal government offers no guidance on the matter for employers, expense reimbursement laws vary from state to state. In some states, such as California, laws are pretty strict. Employers must reimburse all “necessary expenditures and losses” incurred as a part of an employee’s job responsibilities. What is considered “necessary” changes when employees are working remotely, and it’s up to employers to find out what the law requires them to do in the jurisdictions in which their employees live and work.
Employers also need to make sure they have a clear understanding of who should be reimbursed. This is also something that can change depending on where you are. In California, for example, they expanded the definition of “employee” in 2020 to include many people who were previously considered contractors. The status of your workers is important in determining how to treat any work-related payments made to them.
When we’re talking about employee expenses, we would be remiss to not mention IRS Code Section 139. During the COVID-19 outbreak, which is a “qualified disaster”, employers can make tax-free “qualified disaster payments” to cover home internet, home office, and phone expenses that arose as a result of the pandemic. This is great news for employers now, but when the national emergency has been lifted, you’ll need to pay attention to how these employee expenses will be treated afterward. If you intend to continue a WFH arrangement, you’ll need an accountable plan in place in order to prove any expense reimbursements are business-related.
New WFH Expenses
In some states, working from home comes with the extra responsibility of reimbursing additional employee expenses that may not have been included in your expense reimbursement policy previously. These could include phones, phone plans, internet service, computers, tablets and other equipment, and any additional home office expenses needed.
Even if employees were covering 100% of these expenses before, such as would be the case for phone or internet service, now that they are using them to complete the responsibilities of their jobs, employers are obligated to cover at least some of these costs.
Reevaluate Existing Expenses
A huge part of an expense reimbursement policy for most businesses is dedicated to travel expenses. If your policy for paying for employee travel is based on mileage reimbursement, then you’re probably not paying a lot right now. While that’s great from an expense perspective, it is important to remember that not all vehicle expenses are tied to driving a vehicle.
When the IRS determines the annual, national standard mileage rate, they look at much more than the cost of fuel. They analyze the cost of car insurance, depreciation, registration and license fees, taxes and routine maintenance costs, as well. Therefore, if you want to ensure employees have a road-ready vehicle when the moment comes, it’s smart to continue to reimburse employees in some way for the cost of maintaining a vehicle.
While an employee is working from home, they may not be receiving any reimbursement for their vehicle expenses simply because they aren’t traveling as much as they used to. If you want your employees to be equipped to drive somewhere tomorrow, you may consider adopting a policy of fixed and variable rate reimbursement (FAVR).
FAVR combines monthly allowance and mileage reimbursement payments to create a custom plan for each employee. It uses geographic data to determine the fixed costs of owning a vehicle and accounts for the variability of employee mileage. This method is non-taxable and considers the need for flexibility you’re looking for under the current circumstances.
Update Your Expense Reimbursement Policy Now
In the coming months and years, there will be a lot of uncertainty and changes coming to businesses as they adapt to a WFH arrangement with their employees. To remain flexible and scalable throughout evolving circumstances, now is the best time to take a closer look at your expense reimbursement policy. As stay-at-home orders come and go and social distancing guidelines change, the last thing you want to do is constantly have to update your reimbursement approach for in-person and WFH scenarios.
As you focus on updating your expense reimbursement policy to be as flexible and scalable as possible, consider incorporating automated mileage and expense reimbursement software at your company. CompanyMileage has revolutionized mileage and expense tracking with their solutions, SureMileage, SureMobile and SureExpense. It only takes a few minutes everyday for any employee to accurately manage their trip mileage, submit expense reports and have their reimbursement approved.
Because CompanyMileage only charges you when your employees use our system, we are a very affordable and flexible option to streamline expense reimbursement management. If you’re reevaluating your expense reimbursement policy in light of this new WFH world, request a demo with CompanyMileage today, and we’ll help you create a program that all of your employees will love.