California work-from-home reimbursement law: A guide for employers

Around the world, remote work is the new normal. Employees log in to their workplaces from home offices, kitchen tables, backyard patios—even different countries. While remote work has brought flexibility, convenience, and other benefits, it also comes with some unique challenges. If your employees work from home—or are encouraged to do so—California state law mandates that you reimburse them for certain necessary, work-related expenses under California Labor Code 2802.

That means if you have employees who work from home in California, you may be legally required to cover costs they incur, like internet, phone, and essential office supplies. Failure to comply can lead to legal penalties and other consequences.

But who is covered under California Labor Code 2802? What business expenses are employers required to reimburse and when? Are all work-from-home employees in California automatically eligible for expense reimbursement, or are there other criteria they have to meet? Learn about all of this and more in the guide below.

California Labor Code 2802: What expenses should be reimbursed?

According to California Labor Code 2802, companies must reimburse employees for all necessary expenses when they work from home—which is why the law is also called the California Expense Reimbursement Law. You may have also heard it referred to as the California Internet Reimbursement Law, or the California Cell Phone Reimbursement Law, because these are a few of the expenses that can be covered under the code and required to be reimbursed.

What does the law require employers to do?

There are two main requirements for employers under the law.

First, the law states that employers must reimburse employees for “all necessary expenditures or losses” incurred as part of their job duties, including when they work from home. This helps make sure that employees are not financially burdened by the costs associated with performing their work remotely.

Second, the law states that employers must offer “reasonable” reimbursement for those expenditures or losses. That means that if a California employee purchases a top-of-the-line laptop or the fastest, most expensive internet plan when those things aren’t necessary to do their job, their employer doesn’t necessarily need to reimburse them for the full cost of either. 

A good example of this is found in the 2014 California court case, Cochran v. Schwan's Home Service, Inc., where the court found that if an employer requires an employee to use their personal cell phone for business purposes, the employer must reimburse a “reasonable percentage” of the cell phone bill, even if the employee chooses to purchase an unlimited data plan. However, no California court has provided a clear-cut definition of what constitutes a “reasonable” reimbursement, so it’s ultimately up to employers to use their own best judgment and reimburse expenses for their employees appropriately.

What costs should employers reimburse?

Under the law, employers who are requiring or encouraging their employees to work on a remote or hybrid schedule should reimburse a reasonable percentage of at least “basic” work-from-home expenses incurred. Keep in mind that to qualify under California Labor Code 2802, the expenses or losses must be necessary to the employee’s job duties—so depending on each remote worker’s job requirements, reimbursable expenses may include:

• A reasonable percentage of their internet bill
• A reasonable percentage of their cell phone bill
• A reasonable percentage of any office equipment they purchase, like a laptop, printer, etc. (equipment purchased by the employer likely belongs to the employer, and must be returned if the employee leaves the company)
• Necessary online subscriptions, like a paid plan for software that’s required to do their job
• Travel expenses, if travel is required for their job

The courts have not yet decided on these types of expenses, but remote workers in California may be eligible for reimbursement for:

• A reasonable percentage of their electricity costs.
• The cost of a dedicated home office space (reimbursement may be more likely if the employee was renting or had plans to rent the space to a third party prior to using it to work from home).

What happens when working from home is voluntary?

When an employee chooses to work from home, the application of California Labor Code 2802 becomes more nuanced. According to the law, employers are required to reimburse employees for necessary expenses incurred in the course of their work. However, if there is a fully equipped office available for employees to work from, the costs associated with working from home may not be considered “necessary” or “reasonable.”

In cases where an employee opts to work from home despite having access to a company office, their employer may not be obligated to reimburse costs such as internet bills, cell phone data plans, or equipment costs, because these expenses may not be deemed necessary for the performance of job duties when the employee has the option to work from a location where those resources are already provided by their employer. This will be fact-specific and depend on each employee and employer’s case; for example, if an employer doesn’t have enough office space for all of its employees on any given day, it may be harder to argue that working from home is truly “voluntary” for all of its remote workers.

For hybrid workers, if they are required or encouraged to work from home part-time, their employers are required under the law to reimburse a reasonable percentage of their necessary expenses or losses. In these cases, the employer would reimburse an amount proportional to the amount of time the employee worked from home versus in-office.

What steps should employers take?

To comply with California's work-from-home reimbursement law, employers must take proactive steps to ensure they are meeting their legal obligations. Here are some key actions employers should consider:

Develop or refine a remote work policy for your company

If any employees work from home because of the absence of an office, lack of space, distance, or any other specific reason, it’s time to make sure you have a clear and comprehensive remote work policy in place.

Your policy should define what constitutes necessary expenses for remote employees in different roles, outline a process for claiming reimbursement, and describe what documentation you require from employees. Having a well-defined policy helps set expectations for employees so they know what to expect—plus, it helps your organization stay consistent in how it handles reimbursements.

Determine how to calculate WFH stipend

Employers with California employees that are encouraged or required to work from home full-time or hybrid need fair and transparent methods for calculating work-from-home stipends or reimbursements.

One possible method is by having employees submit their actual internet and cell phone bills, along with other reimbursable costs, like electricity statements, so your HR or finance team can calculate a reasonable percentage to reimburse. Their calculations should reflect actual work-related usage of each service to ensure compliance with the law and fairness to your employees.

Under California Labor Code 2802, you also have the option to increase employees’ salaries instead of reimbursing expenses separately. This is known as the “wage-expense reimbursement,” and it’s a valid way to comply with the law, as long as you increase employees’ salaries by enough to sufficiently cover all the reimbursable expenses they incurred.

Open communication channels for employees to inform if they think they haven’t been adequately reimbursed

Lastly, employers should create clear channels employees can use to report any concerns about inadequate reimbursement. This might include regular check-ins, anonymous feedback mechanisms, or a designated HR or finance contact who can address reimbursement concerns. This should be outlined in your organization’s work-from-home policy and communicated to employees by their managers or supervisors so they know what to do if there’s ever a problem or concern with their reimbursements.

How Rippling can help

California law requires employers to reimburse their employees for all necessary expenses that are a direct consequence of the employee’s job duties, regardless of whether the expenses were directly caused by the employer.  While California’s law is much broader than what we typically see in other states, Illinois and other jurisdictions are slowly but surely catching up, especially when it comes to the reimbursement of remote work expenses. So for employers who have remote workers in multiple states or jurisdictions, complying with varying labor and employment laws can be a big challenge. Rippling can help.

With Rippling, expense management and expense reimbursement become fast, painless, and user–friendly thanks to powerful customization and automation. Via web or a mobile app, employees submit expenses or upload receipts. Approvals are based on rules you set up based on employees’ departments, roles, job titles, locations, and other data—and once you set them up, they automatically apply to reimbursement requests. Out-of-policy requests, duplicate transactions, or receipt mismatches get automatically flagged, and every expense gets synced to your organization’s general ledger for easy accounting.

In other words, Rippling can help you streamline your reimbursement process, enabling accurate and timely payments—while complying with regulations in California, and anywhere else, nationwide.

This blog is based on information available to Rippling as of July 27, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.