The COVID pandemic, coupled with a national labor shortage, has found many not-for-profit (NFP) organizations shifting their employment strategies. In many ways, this has allowed for creative solutions and expanded the potential workforce to allow organizations to find employees to best execute their mission.
The use of technology has allowed teams to stay connected without being in the same physical location and fill open employment roles from a wider net of potential employees. However, this also means many NFPs are now managing employees in a mixture of remote, hybrid and traditional employment structures.
These new solutions can cause concern and inconsistent application when it comes to expense reimbursement. With a workforce model that is all homogenous, an employer can use a standard expense reimbursement policy and generally a ‘one size fits all’ for reimbursement. But with employees who might live in different areas of the country or perhaps don’t have access to the same resources, these policies become concerning and employers struggle with how to best address them.
According to federal law, you do not need to reimburse remote employees for work-related expenses unless those expenses cause their earnings to fall below:
For example, a large one-time purchase (like a printer) could easily reduce someone’s wages.
It is also crucial for an employer to consider individual state requirements. Many states have very specific laws related to employee expense reimbursement. California, for example, requires reimbursement for cell phone usage, air conditioning and other stipulations that employers need to be aware of.
It is recommended to carefully track remote employees’ expenses to ensure they don’t fall below the Federal minimum wage or salary threshold and that state requirements are being met.
First and foremost, understand the difference between necessary and unnecessary expenses.
Individual state laws related to reimbursement often require employers to reimburse “necessary” expenses. In most cases a “necessary” expense is anything an employee needs to complete their job responsibilities.
Necessary expenses often include:
Expenses that are typically considered unnecessary include items such as:
It’s critical for an employer to have a written policy that clearly identifies what is required and will be reimbursed, and it is suggested to include common items that are considered unnecessary. Ensuring the written policy is consistently applied is also an important step in avoiding misunderstanding and a perceived unequal approach between employees. Considering the balance of effective, long-lasting equipment and the organization’s budget and cash flow will help to set expectations and avoid inconsistencies within the organization.
Creating a thorough business expense policy can also help an organization stay compliant and consistent when reimbursing remote employees. It is a best practice to review and update policies annually and to ensure that the policy is appropriate for the changing workforce composition.
A strong policy should include:
Additionally, in crafting a policy, it’s important to consider the cost to the organization of varying degrees of remote or hybrid employees. Organizations with more remote employees may save on overhead costs with a reduction in facility and operational costs; however, employees working remotely may need to pay more for faster or more reliable internet service. Crafting a policy that supports employees having a stronger connection could help their performance, productivity and morale.
Simple things like snacks or treats that are a staple of the in-office environment could also be considered an impactful use of an employee reimbursement policy and allow remote employees to foster a connection to the culture and their colleagues.
For many not-for-profit organizations, personnel and employee expenses are one of the largest items on their statement of operations and the key to implementing programs and fulfilling their mission. It is imperative that organizations understand the complexities of managing employees including employee reimbursement.
Baker Tilly’s Vantagen team provides our clients flexible and custom solutions in HR consulting and benefits. Please contact your Baker Tilly Value Architect™ to ask questions or to have your current policy reviewed.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.