In California, employers are legally required to reimburse employees for all necessary expenses incurred as a direct consequence of their job duties, including the use of personal cell phones for work purposes. This is mandated by California Labor Code section 2802, prevents employers from shifting their business operating costs onto employees. The law applies even if employees are on unlimited or family plans; the key issue is whether the phone is required for work, not whether the employee incurs additional out-of-pocket costs.
Determining a Reasonable Reimbursement Amount
There is no specific dollar amount set by law for cell phone reimbursement. Instead, the reimbursement must be “reasonable” and should reflect the part of the employee’s cell phone use that is attributable to work duties. Courts have clarified that employers must exercise due diligence to ensure employees are properly reimbursed when they know or have reason to know that personal phones are used for work.
Industry studies indicate that many company reimbursements for mobile expenses range between $30 and $50 per month, with the average being about $40.20 per employee. Some sources recommend two-tier systems, such as $30 for low business use and $50 for high business use, but the reimbursement should never exceed the employee’s actual monthly bill (even if someone else pays the employee’s phone bills). The amount should be proportional to the work-related use—if about half of the phone’s use is for work, reimbursing half of the monthly plan cost is reasonable.
Tax Implications
Cell phone reimbursements for business use are generally not taxable to employees, provided they are for noncompensatory business reasons and do not exceed the employee’s actual costs Minimal personal use is considered a de minimis fringe benefit and does not affect the tax status. [WARNING: I am not a tax attorney. Do not take my tax advice. Consult a tax expert for accurate advice regarding taxes.].
Best Practices for Policy Design
When considering a cell phone reimbursement policy, there are some best practices to consider:
- Written Policy: Employers should have a clear, written reimbursement policy outlining eligibility, process, and required documentation.
- Consistent Tiers: Using standard reimbursement tiers across the company is defensible and easier to administer.
- Documentation: While IRS documentation requirements have relaxed, reimbursements should not exceed the employee’s actual phone bill.
- Eligibility: Define which roles require use of personal cell phones based on job duties and business necessity.
Evaluation of the Company’s Formula
While the company may believe its policy “more than compensates” employees, it is important to make sure the reimbursement is actually reasonable in relation to the employees’ work-related phone use and the true cost of their cell phone plans. If, for example, an employee’s work use justifies a higher part of their plan, or if their plan costs more than the maximum reimbursement, the policy could fall short of legal requirements.
To ensure compliance with California law, the company must confirm that the reimbursement reasonably covers the actual work-related part of employees’ cell phone expenses and does not arbitrarily cap reimbursement below what is necessary for business use. Regular reviews of the policy are recommended to reflect changes in plan costs and employee usage patterns.
When an employee works only a few hours per month and must use their personal cell phone for work, determining a fair reimbursement rate requires a method that reflects the minimal business use while still following California law. Here are several alternative methods the company could consider:
Alternative Reimbursement Methods
One size does not necessarily fit all. The following are some alternative methods employers may consider using to reimburse employee’s for their work-related phone usage.
- Pro-Rated Percentage Based on Usage
- Calculate the percentage of the employee’s total monthly phone use that is work-related. For example, if the employee’s work use is estimated to be 5% of their total phone use (reflecting 2–4 hours out of a typical month), reimburse 5% of their $45 monthly bill, which would be $2.25.
- This method aligns with legal guidance to reimburse a “reasonable percentage” based on actual work use.
- Usage-Based Reimbursement
- Ask the employee to track and report actual work-related calls, texts, and data usage for a typical month. Reimburse the part of the bill that corresponds to this usage.
- While more precise, this method can be administratively burdensome for both the company and the employee.
- Minimum Flat Rate
- Set a minimum flat reimbursement amount for employees with minimal work-related use, such as $5 or $10 per month. This recognizes the administrative cost of tracking tiny percentages and still provides compensation for the required use.
- This approach is simple and easy to administer, though it must be defensible as “reasonable” for the actual use.
- Employee-Submitted Expense Claims
- Allow the employee to submit a claim for reimbursement only in months when they incur actual, measurable work-related costs above a certain threshold (e.g., extra data or international calls for work).
- This method is best if work use is highly irregular or infrequent.
- Annual Review and Adjustment
- Calculate the total estimated work use over a year and provide a lump-sum annual reimbursement, or adjust the monthly rate annually based on actual usage patterns.
Key Considerations
When deciding which method to use, keep these three considerations in mind:
- Legal Compliance: California law requires reimbursement for “all necessary expenditures,” even if the employee has an unlimited plan or incurs no extra out-of-pocket cost.
- Employee Communication: Regularly check with employees to ensure the reimbursement feels fair and covers their work-related use.
- Simplicity vs. Precision: For minimal use, a low flat rate or pro-rated percentage is often the most practical and compliant solution.
The Nuddleman Law Firm helps companies comply with the law and advises employees regarding enforcing their rights. Robert Nuddleman presents a variety of seminars and trainings regarding best practices and employee rights in the workplace. If you have questions about which employment laws apply at your work, contact the Nuddleman Law Firm.
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