HR Hotline: Can We Reimburse Employees Working Remotely for Cell Phone Use?
Q: Can a company reimburse employees for use of personal cell phones while working remotely?
Do we have to include the amount on their paychecks as taxable income?
A: First the larger question, as addressed by the U.S. Department of Labor’s Fair Labor Standards Act FAQ:
Q: Are businesses and other employers required to cover any additional costs that employees may incur if they work from home (internet access, computer, additional phone line, increased use of electricity, etc.)?
A: Employers may not require employees who are covered by the FLSA to pay or reimburse the employer for such items that are business expenses of the employer if doing so reduces the employee’s earnings below the required minimum wage or overtime compensation.
As to the specific question of reimbursing an employee for business use of a personally owned cell phone, extra data used, etc., that question is not specifically covered by DOL or the IRS.
However, the IRS has addressed the tax treatment of the value of business provided cell phones that may also be used by employees for personal use.
The Employer’s Tax Guide to Fringe Benefits, on pages 12-13, clearly states that the value of an “employer provided cell phone” does not have to be reported as taxable income, as long as it’s not deemed a reward or “feel good” item merely to promote morale.
As explained in more detail in IRS Notice 2011-72, 2011-38 I.R.B. 407:
Many employers provide their employees with cell phones primarily for noncompensatory business reasons. The value of the business use of an employer-provided cell phone is excludable from an employee’s income as a working condition fringe to the extent that, if the employee paid for the use of the cell phone themselves, such payment would be allowable as a deduction under section 162 for the employee.
An employer will be considered to have provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the employee with a cell phone. For example, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day are possible substantial noncompensatory business reasons. A cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes.
In addition, the IRS will treat the value of any personal use of a cell phone provided by the employer primarily for noncompensatory business purposes as excludable from the employee’s income as a de minimis fringe benefit.
Although the IRS references don’t cover cash reimbursement provided an employee for business use of a personal cell phone, it should be excluded from taxable income to the extent it is a reasonable amount relative to the costs of the cell phone for legitimate job-required and job-related use.
If the cash reimbursement approaches full payment for an employee’s total monthly cell phone plan, clearly covering all personal use as well, that might instead be viewed as a subterfuge to hide increased compensation from taxes.
You should make a notation regarding this payment that it is for business use of the cell phone where employee contact or customer contact is necessary when working remotely.
And it might be prudent to check with your accountant just to be sure.
HR problems? Email or call Mark Soycher at the HR Hotline (860.244.1900) | @HRHotline
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