In April, the Illinois Department of Labor published new regulations regarding the expense reimbursement requirements in Section 9.5 of the Illinois Wage Payment and Collection Act. The Act requires an employer to reimburse an employee for “all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed by the employer.” It defines “necessary expenditures” as “all reasonable expenditures or losses required of the employee in the discharge of employment duties that inure to the primary benefit of the employer.”
In an apparent effort to add some clarity to these definitions, the new regulations identify five factors that are to be considered when evaluating whether an expense primarily benefits an employer. These include:
- Whether the employee has an 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.
- Whether the expense is required of the job.
The regulations specify that no single factor is dispositive and that the analysis should “focus on the extent to which the expense benefits the employer and its business and business model.”
Unfortunately, the new regulations provide no clarity on when an expense reimbursement is “necessary,” or what amounts will be considered “reasonable” for reimbursement. They also provide no practical guidance to employers regarding common expense reimbursement issues, such as whether and to what extent an employer must reimburse employees for mobile phones, voice and data service, and home internet.
The new regulations also impose new recordkeeping requirements for employers. Employers are now obligated to maintain the following for at least three 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.
Although the recordkeeping requirement nominally extends only three years, employers should note that the statute of limitations for wage claims under the Wage Payment and Collection Act is ten years. Accordingly, employers may wish to maintain their reimbursement records for longer than strictly required by the regulations.
One way for employers to limit their potential exposure to claims for expense reimbursements is to establish a reasonable expense reimbursement policy. Section 9.5(b) of the Act specifies that an employee is not entitled to reimbursement if the employee fails to comply with an employer’s written expense reimbursement policy, and that the employer is not liable for an expense reimbursement unless it authorizes or requires the employee to incur a necessary expenditure or fails to comply with its own reimbursement policy. So long as an employer’s policy does not outright deny reimbursement or provide for de minimus reimbursement of necessary expenses, the employer is not liable for any portion of an expense that exceeds the specifications or guidelines set forth in its reimbursement policy.
While these provisions remain in the statute, the new regulations introduce a further wrinkle: if an employer “through direct authorization or practice” allows for reimbursement of amounts that exceed its written policy, the employer is “liable for full reimbursement of such expenses.” It remains to be seen how the DOL and courts may interpret this provision. However, given this new language, it behooves employers to carefully and consistently follow their expense reimbursement policies and guidelines.
The new regulations are currently in effect.
