Are you impermissibly denying employee requests for reimbursement of work-related expenses?

By SCOTT CRUZ

If you are an employer who has Illinois employees that incur work-related expenses as part of their job, did you know that the Illinois Department of Labor (“IDOL”) has had regulations in place since April 2023 governing provisions under the Illinois Wage Payment and Collection Act (“WPCA”) that require employers to reimburse employees for “necessary expenditures or losses” required of employees in in performing their duties and, that “inure to the primary benefit of the employer.”

Prior to these regulations, the IDOL offered no written guidance for employers to use in determining if a particular work-related expense an employee incurred was for the “primary benefit” of the employer.

These regulations create the following five-factor test for employers to use in making that determination:

• Whether the employee has any expectation of reimbursement;
• Whether the expense is required or necessary to perform the employee’s job duties;
• Whether the employer is receiving a value that it would otherwise need to pay for;
• How long the employer is receiving the benefit; and
• Whether the expense is required of the job.

No single factor is determinative; rather, “the analysis should focus on the extent to which the expense benefits the employer and its business and business model.”

By way of example, if you require your employees to use their personal cellphone for work purposes, such as accessing an authenticator app for multi-factor authentication (with no other alternative for authentication), applying the factors above, you are likely required to reimburse the employee for a reasonable percentage of their monthly personal cellphone bill based on work-related usage.

Indeed, an employee may incur extra monthly cellphone charges for utilizing the multi-factor authentication; that expense is both required and necessary, because you offer no alternative for multi-factor authentication and, the employee cannot perform the employee’s job without accessing your systems; you are receiving value, because requiring multi-factor authentication protects your organization’s personal and business data from outside breaches; you have benefited from multi-factor authentication since the first day you required usage; and it is required of your employees’ job because they cannot access your systems without utilizing the multi-factor authentication process visa the app you require to be installed on their personal cellphone.

It is recommended that all Illinois employers have in place a written expense reimbursement policy in place and use these five factors in making any such determinations related to employee reimbursement requests for work-related expenses. Strict adherence to that policy also is recommended, based on the possible ramifications under these regulations for any variance from that policy for reimbursing employees more generously than what is set forth under that policy’s written terms.

Indeed, these regulations provide that even if an employer’s written expense reimbursement policy establishes specifications or guidelines for reimbursable expenditures, but the employer, “through direct authorization or practice,” allows for reimbursement of amounts that exceed those specified in its written policy, the employer will be liable for full reimbursement of such expenses.

In other words, you may actually bind yourself to reimbursements beyond those specified in your policy, whether intended or not, which may thereafter require you to pay that new higher reimbursement amount for all other same or substantially similar reimbursement requests subsequently made by your employees in the future.

These regulations also state that if an employer denies an employee’s request for reimbursement, or fails to respond to an employee’s request for reimbursement, and the expenses are of the nature “that should have been reimbursable” based on the above five-factors, an employee may file a complaint with the IDOL for reimbursement.

Therefore, employers should explain in their written expense reimbursement policy the process for reviewing and approving/denying reimbursement requests, include the deadline for submitting reimbursement requests, and the anticipated time period for review and to make a reimbursement determination, in order to preempt an employee from hastily filing a claim with the IDOL alleging failure to respond.

These regulations also require employers to maintain and preserve the following records regarding employee expenses, for a period of three (3) years:

• All policies regarding reimbursement;
• All employee requests for reimbursement;
• Documentation showing approval or denial of reimbursement; and
• Documentation showing actual reimbursement and supporting documents.

Thus, it is imperative that employers inform any individuals in their organization (e.g., managers, payroll, etc.) who review or approve/deny Illinois employee expense reimbursement requests of these recordkeeping requirements and, update their document retention policies to comply with these recordkeeping requirements.

Further, these regulations provide that if the IDOL determines that an employer has violated the WPCA because the employer owes the employee back wages or final compensation (defined under the WPCA to include, among other things, expense reimbursements), damages are assessed at five (5) percent of the amount of owed, multiplied by the number of months between when the violation occurred and when the employer pays the amount owed.

Accordingly, employers should exercise caution in denying reimbursement expenses, especially if there is a good faith basis to deem the expense reimbursable under the above five-factor test, and in the absence of a written expense reimbursement policy identifying all reimbursable expenses.

As recommended above, Illinois employers should immediately review their written expense reimbursement and record-keeping policies and practices to ensure they are – and have been since April 2023 – complying with these regulations.

At a minimum, employers should have in place a written policy that identifies all work-related expenses considered to be necessary, reasonable and reimbursable; that identifies the procedures for timely submitting requests for reimbursement for any such work related expenses; and that explains your record retention policy.

 

Scott Cruz is a partner in the Labor & Employment Practice Group of UB Greensfelder LLP’s Chicago, O’Fallon, Ill. and St. Louis, Mo. offices. Cruz can be reached at (312) 658-6608 or [email protected].