Expense Reimbursement

What Is Expense Reimbursement?

Expense reimbursement is the process by which employers pay back employees for costs incurred while performing their job duties. Under California Labor Code Section 2802, employers must indemnify (reimburse) employees for all necessary expenditures or losses incurred as a direct consequence of their work duties.

This protection is among the broadest in the nation, ensuring that employees are not forced to subsidize their employer's business operations through personal expenses.

California Labor Code Section 2802

The Legal Requirement

Labor Code Section 2802 states:

"An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties."

Key Elements

Element	Description
Necessary	Reasonably required to perform job duties
Expenditures	Money spent by employee for business purposes
Losses	Property damage incurred during work duties
Direct consequence	Resulting from performing job duties
Discharge of duties	In the course of authorized work

What Must Be Reimbursed?

Any expense that meets these criteria:

1. Required or reasonably necessary to perform job duties
2. Incurred at the employer's direction or with employer's knowledge
3. Connected to employment activities
4. Not primarily for personal benefit

Common Reimbursable Expenses

Technology and Equipment

Expense	When Reimbursable
Personal cell phone	When used for business calls/texts/data
Home internet	When required for remote work
Computer and peripherals	When personal devices are used for work
Software and apps	When required for job duties
Printer and supplies	When used for business documents

Travel and Transportation

Expense	When Reimbursable
Personal vehicle mileage	For business travel (not commuting)
Parking and tolls	For business-related parking/travel
Public transit	For business travel
Rental cars	When required for business
Airfare and lodging	For business trips
Meals during travel	Reasonable costs during travel

Work Supplies

Expense	When Reimbursable
Tools and equipment	Required for job performance
Uniforms	If employer-required
Safety equipment	Always employer's responsibility
Office supplies	When used for work purposes
Educational materials	If required by employer

Remote Work Expenses

With the rise of remote work, additional expenses may be reimbursable:

Expense	Analysis
Home office furniture	If required by employer, likely reimbursable
Electricity	Portion used for work may be reimbursable
Heating/cooling	Portion used for work may be reimbursable
Home office space	Generally not reimbursable (rent)
Internet upgrade	If required for work, difference may be reimbursable

Cell Phone Reimbursement

The Leading Case: Cochran v. Schwan's

The California Court of Appeal established that employers must reimburse employees for work-related cell phone use, even if:

• The employee has an unlimited plan
• No additional cost was incurred
• The calls were minimal

Reimbursement Approaches

Approach	Description	Pros/Cons
Actual cost	Reimburse based on percentage of use	Accurate but complex to track
Flat stipend	Fixed monthly amount	Simple but may under/over reimburse
Company phone	Employer provides device	Full control but higher upfront cost
Hybrid	Stipend plus additional for high use	Balanced approach

Calculating Cell Phone Reimbursement

Percentage Method

Factor	Example
Monthly phone bill	$100
Work-related use	30%
Monthly reimbursement	$30

Reasonable Estimate Method

Cost Component	Monthly Amount
Voice portion	$15
Data portion	$10
Equipment wear	$5
Total stipend	$30

Mileage Reimbursement

IRS Standard Mileage Rate

Many employers use the IRS standard mileage rate as a benchmark:

Year	Rate per Mile
2024	$0.67
2023	$0.655
2022	$0.585-0.625

California Requirements

While the IRS rate is not legally required, it serves as a reasonable estimate:

Scenario	Reimbursement Required
Business travel	Yes, at reasonable rate
Client meetings	Yes
Deliveries	Yes
Normal commute	No (personal expense)
Multiple work locations	May be reimbursable after first location

What Mileage Rate Is "Reasonable"?

A reasonable rate should cover:

Cost Component	Included
Gas	Yes
Oil changes	Yes
Tire wear	Yes
Insurance	Portion used for work
Depreciation	Yes
Maintenance	Yes

The IRS rate is presumed reasonable, but employers may use actual costs if accurately tracked.

Commute vs. Business Travel

Travel Type	Reimbursable?
Home to primary workplace	No (commute)
Between work sites during day	Yes
From home to client meeting	Portion may be reimbursable
Home to airport for business trip	Yes
Personal errands during work	No

Remote Work Expenses

Employer Obligations for Remote Workers

When employees work from home:

Expense	Obligation
Internet	Portion for work use
Phone	Business use portion
Office supplies	When needed for work
Computer equipment	If employer doesn't provide
Ergonomic equipment	If required or recommended
Printing costs	For work documents

Calculating Remote Work Reimbursement

Example: Monthly Home Office Stipend

Expense	Full Cost	Work Portion	Reimbursement
Internet	$80	50%	$40
Phone	$100	30%	$30
Electricity	$150	20%	$30
Supplies	$25	100%	$25
Total			$125/month

Best Practices for Remote Work Reimbursement

1. Written Policy: Clear guidelines on what's covered
2. Flat Stipend: Often simplest approach
3. Equipment Provision: Provide major equipment directly
4. Expense Reports: Process to submit additional costs
5. Regular Review: Update amounts as costs change

Expense Reimbursement Policies

Elements of a Good Policy

Component	Description
Covered expenses	Clear list of reimbursable items
Submission process	How to request reimbursement
Approval requirements	Who approves and at what levels
Documentation needed	Receipts, logs, explanations
Timing	When reimbursement will be paid
Dispute resolution	How to address disagreements

Sample Policy Provisions

Timely Submission

• Expenses submitted within 30 days of incurrence
• Monthly expense reports for recurring costs
• Pre-approval required for expenses over $100

Documentation Requirements

• Original receipts for purchases
• Mileage logs with dates and business purpose
• Phone bills showing usage periods

Reimbursement Timing

• Submitted expenses reimbursed on next regular payday
• Large expenses may be advanced with approval

Employer Defenses and Limitations

When Expenses Are Not Reimbursable

Scenario	Analysis
Personal choice expenses	If not required, not reimbursable
Expenses beyond reasonable	Only reasonable amounts required
Violation of policy	May reduce reimbursement obligation
Lack of documentation	Reasonable documentation can be required
Fraudulent claims	Employer not obligated to reimburse

Requiring Pre-Approval

Employers may:

• Require pre-approval for expenses over a threshold
• Set reasonable limits on expense amounts
• Require use of company vendors or accounts
• Deny expenses outside approved categories

However, employers cannot:

• Fail to reimburse necessary expenses because policy wasn't followed
• Set unreasonably low limits that don't cover actual costs
• Require employees to personally bear necessary business costs

Documentation Requirements

Reasonable documentation employers can require:

Expense Type	Reasonable Documentation
Mileage	Date, destination, business purpose, miles
Purchases	Receipt with date, vendor, amount
Phone	Monthly bill and work use estimate
Meals	Receipt and business purpose
Travel	Itinerary, receipts, business purpose

Penalties for Non-Compliance

Employee Remedies

Remedy	Description
Full reimbursement	All unreimbursed expenses
Interest	10% per year
Attorney's fees	If employee prevails in lawsuit
Waiting time penalties	If deducted from or affects final pay
PAGA penalties	$100-$200 per pay period per employee

Statute of Limitations

Claim Type	Time Limit
Expense reimbursement	4 years (written policy), 3 years (no written policy)
Class action	Same, from last violation
PAGA	1 year

Example Liability Calculation

Employee drives 500 miles/month for work, not reimbursed over 3 years:

Damage	Calculation	Amount
Mileage (500 × $0.67 × 36 months)	$12,060	$12,060
Interest (average)	10% per year	$1,800
Attorney's fees	200 hours × $400	$80,000
Total exposure	(per employee)	$93,860+

Class Action Exposure

Expense reimbursement claims frequently become class actions because:

• Similar policies affect all employees
• Damages are easily calculated
• Claims aggregate to significant amounts
• Attorney's fees incentivize litigation

Notable California Cases

Case Area	Issue
Cell phone	Personal phones used for work
Mileage	Delivery drivers, sales staff
Remote work	COVID-era work-from-home expenses
Tools	Construction and trade workers
Uniforms	Restaurant and retail workers

Best Practices for Compliance

Proactive Measures

1. Audit Current Practices: Review what expenses employees incur
2. Written Policy: Create clear, comprehensive expense policy
3. Training: Educate managers on reimbursement requirements
4. Easy Submission: Simple process for expense claims
5. Prompt Payment: Reimburse quickly to avoid disputes
6. Regular Review: Update policies as work arrangements change

Technology Solutions

Modern expense management can include:

Tool	Benefit
Expense apps	Easy submission and tracking
Mileage tracking	Automatic logging of business travel
Corporate cards	Direct payment eliminates reimbursement need
Integration with payroll	Reimbursements on paychecks
Audit capabilities	Identify compliance gaps

Remote Work Considerations

Since COVID-19 increased remote work:

• Review home office expense obligations
• Consider flat stipends for simplicity
• Provide equipment directly when possible
• Document work-from-home arrangements
• Update policies for hybrid work

Protection Against Retaliation

Employees who seek expense reimbursement are protected:

• Cannot be disciplined for submitting expense claims
• Cannot be terminated for requesting reimbursement
• Retaliation claims can increase employer liability
• Whistleblower protections may apply