Remote Work Expense Reimbursement: State Laws (CA, IL, MA, and More)

Remote work has converted costs that employers once paid directly — office space, electricity, internet, telephone — into costs that employees often bear at home. Federal law is largely silent on reimbursement, leaving the question to state labor codes. The result is a patchwork: California, Illinois, Massachusetts, Montana, North Dakota, South Dakota, and the District of Columbia require employers to reimburse necessary remote-work expenses, while most other states do not. Employers with remote workers in multiple states face a compliance matrix that the federal Fair Labor Standards Act never anticipated.

This guide walks through the federal landscape, the seven state reimbursement statutes, the leading case law, the categories of reimbursable expenses, the reimbursement methods, the de minimis exception, a worked example, and the audit risk. Every statute and case cited is current as of 2025, with primary-source references so you can verify before acting.

The federal landscape

The Fair Labor Standards Act (FLSA), 29 U.S.C. §201 et seq., does not require employers to reimburse employees for business expenses. The only federal constraint is that, for non-exempt employees, net pay after deducting unreimbursed business expenses cannot fall below the federal minimum wage of $7.25 per hour (29 U.S.C. §206) or the applicable state minimum wage, whichever is higher. The Department of Labor reaffirmed this principle in its 2020 opinion letter FLSA2020-15, confirming that the FLSA does not require expense reimbursement generally.

The FLSA's net-pay floor provides only minimal protection for higher-paid remote workers. A remote worker earning $75,000 per year would need to spend nearly $60,000 in unreimbursed expenses before the FLSA minimum-wage floor applied. In practice, the federal floor is irrelevant for the typical remote worker. The meaningful protections come from state law, and only a handful of states provide them.

The federal tax code also affects reimbursement. Under IRC §62(a)(2)(A), reimbursed expenses paid under an "accountable plan" are excluded from the employee's W-2 wages and are not taxable. Under an "non-accountable plan," reimbursements are included in W-2 wages as additional compensation, and the employee may (for 2018-2025) no longer deduct the expenses personally because the TCJA suspended miscellaneous itemized deductions under IRC §67(g). The accountable plan rules in Treas. Reg. §1.62-2 govern the substantiation and return-of-excess requirements.

California Labor Code 2802

California Labor Code §2802(a) requires employers to "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." The statute is broadly written and the courts have construed it broadly. The leading case is Cochran v. Schwan's Home Service, Inc., 228 Cal. App. 4th 1137 (2014), in which the California Court of Appeal held that an employer must reimburse a reasonable share of the employee's cell phone bill when the phone is required for work, regardless of whether the employee had a personal plan that already covered the cost.

Cochran's reasoning extends naturally to remote work. If internet access is required for work, the employer must reimburse a reasonable share of the employee's internet bill. If a phone is required, a reasonable share of the phone bill. If the home office requires electricity and heating, a reasonable share of those utilities. California's Division of Labor Standards Enforcement (DLSE) has issued guidance stating that employers should reimburse a percentage of home utilities proportional to the square footage of the home office relative to the total home, or by another reasonable allocation method.

California Labor Code §2802(c) creates an additional compliance hurdle: employers must reimburse within a reasonable time, and the statute of limitations for unpaid reimbursements is three years under California Code of Civil Procedure §338. Employees can sue individually or as part of a class action, and successful plaintiffs recover attorney's fees under California Code of Civil Procedure §1021.5. The Private Attorneys General Act (PAGA), California Labor Code §2698, allows employees to seek civil penalties for labor violations on behalf of the state, multiplying the potential exposure.

Illinois Wage Payment and Collection Act

Illinois requires expense reimbursement under 820 ILCS 115/9.5, added to the Wage Payment and Collection Act effective January 1, 2019. The statute requires employers to reimburse employees for "all necessary expenditures or losses incurred by the employee within the employee's scope of employment and directly related to services performed for the employer." The Illinois Department of Labor enforces the requirement, and employees can also sue privately under 820 ILCS 115/13 for unpaid reimbursements plus damages.

The Illinois statute has a notable limitation: an employer is not liable for reimbursement if it had a written policy establishing the requirements for reimbursement and the employee failed to comply with that policy. This "policy defense" is unique to Illinois and gives employers a safe harbor if they have a clear, written expense reimbursement policy and the employee did not follow it. Best practice is to publish the policy in the employee handbook, require expense reports within 30 days, and respond within 30 days.

Illinois courts have not yet addressed remote work expenses under §9.5 directly, but the statute's "necessary expenditures" language tracks California's §2802 closely, and the Cochran reasoning is likely to apply. Illinois employers with remote workers should reimburse a reasonable share of internet, phone, and home utilities on the same basis as California employers, subject to the policy defense.

Massachusetts Electronic Monitoring Law

Massachusetts requires expense reimbursement under M.G.L. c. 149, §52C, the Electronic Monitoring and Reimbursement Law. The statute requires employers who monitor employee phone or email use to disclose the monitoring in writing, and separately requires employers to reimburse employees for "all business expenses" incurred in connection with their employment. The Massachusetts Attorney General enforces the requirement under M.G.L. c. 149, §150, which provides for treble damages for willful violations plus attorney's fees.

The Massachusetts statute is broader than the Illinois policy-defense statute and closer to California's strict-liability rule. There is no written-policy defense. The statute expressly applies to remote work expenses, and the Massachusetts Attorney General's Fair Labor Division has issued guidance stating that employers must reimburse reasonable costs of internet, phone, and home office equipment for remote workers. The Massachusetts Supreme Judicial Court has not yet addressed the remote work question directly, but lower court decisions have applied §52C broadly.

The treble damages provision makes Massachusetts particularly risky for non-compliant employers. A $100 per month unreimbursed internet expense, multiplied by 36 months (the statute of limitations under M.G.L. c. 260, §2A) and tripled, produces $10,800 in damages for a single employee — plus attorney's fees. Class actions multiply this exposure dramatically.

Other states with reimbursement requirements

Five additional jurisdictions require expense reimbursement by statute. Montana (Mont. Code §39-2-702) requires reimbursement of "necessary expenditures" in language that tracks California's. North Dakota (N.D. Cent. Code §34-14-02) requires reimbursement of "all necessary expenses." South Dakota (S.D. Codified Laws §60-2-13) requires reimbursement of "all necessary expenses." The District of Columbia (D.C. Code §32-913) requires reimbursement of "all necessary expenses." These statutes have not been extensively litigated, but their broad language covers remote work expenses.

Iowa (Iowa Code §91A.4) requires employers to reimburse employees for expenses "authorized and necessarily incurred" — language that requires employer authorization, making Iowa closer to Illinois than to California. New Hampshire (N.H. R.S.A. §275:49-3) prohibits requiring employees to pay for "uniforms or other costs of doing business" but has not been applied to remote work expenses. Several other states have wage-payment statutes that have been interpreted to require reimbursement in narrow circumstances but do not generally apply to remote work.

The remaining 35-plus states do not have a general expense reimbursement statute. In those states, reimbursement is a matter of contract between employer and employee. Employers with remote workers in those states can refuse reimbursement without statutory liability, though they may face claims under unjust enrichment, breach of implied contract, or wage-and-hour theories if they fail to follow their own written policies.

Reimbursable expenses and the IRS 50% rule

The categories of reimbursable remote-work expenses are fairly consistent across the reimbursement states. Internet access is the most common, because remote work requires connectivity. Telephone is reimbursable if the employee is required to use a phone for work. Home utilities (electricity, heating, cooling) are reimbursable in proportion to the home office's share of the home. Home office equipment (desk, chair, monitor, keyboard) is reimbursable if required by the employer and not provided directly.

The IRS home office deduction rules under IRC §280A provide a useful allocation framework, even though §280A itself only applies to self-employed individuals and employees were suspended from claiming the deduction for 2018-2025 under the TCJA. The simplified method (Rev. Proc. 2013-13) allows $5 per square foot of home office, up to 300 square feet, for a maximum $1,500 annual deduction. This figure is a reasonable proxy for the reimbursable portion of home utilities, though California DLSE guidance suggests a higher allocation may be appropriate in high-cost areas.

The "50% rule" referenced in the task description is a general shorthand for the IRS business-use percentage: if a 1,000 square foot apartment contains a 100 square foot home office, the business use percentage is 10%, and 10% of rent and utilities is reimbursable. The exact percentage depends on the actual home office size relative to total living space. Employers should accept a documented square-footage calculation rather than defaulting to a single percentage for all employees.

Reimbursement methods

Three reimbursement methods are common. The first is actual-expense reimbursement, where the employee submits receipts and the employer pays the actual cost. This method is the most defensible under §2802 and §9.5, but it is administratively heavy. The second is a flat stipend, where the employer pays a fixed monthly amount regardless of actual cost. This method is simpler but creates non-compliance risk if the stipend is set below actual cost for some employees.

The third method is the IRS mileage rate equivalent — using an established rate schedule (like the IRS optional mileage rate, 70 cents per mile for 2025) as a proxy for actual cost. For remote work, this method is less directly applicable but can be used for internet and phone reimbursement if the employer adopts a fixed cents-per-day or dollars-per-month rate based on industry averages. The rate should be reviewed annually to ensure it remains reasonable.

The safest approach is a hybrid: a base stipend that covers the typical employee's cost, plus an actual-expense reimbursement option for employees whose documented costs exceed the stipend. This structure satisfies California §2802, Illinois §9.5, Massachusetts §52C, and the other reimbursement statutes because it ensures every employee is made whole for actual costs while minimizing administrative overhead. The policy should be in writing and should require expense reports at least annually for the actual-expense option.

The de minimis exception

The de minimis doctrine, originating in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), allows employers to disregard small or hard-to-track costs. The doctrine has been applied narrowly in the wage-and-hour context and even more narrowly in the expense reimbursement context. California courts have held that the de minimis defense to wage claims is largely obsolete after Troester v. Starbucks Corp., 5 Cal. 5th 829 (2018), and there is no recognized de minimis exception to §2802 reimbursement.

In practice, the de minimis exception for expense reimbursement may apply to truly negligible costs — a few sheets of printer paper, occasional use of a personal pen — but does not apply to recurring costs like internet, phone, or utilities. Employers relying on the de minimis exception for remote work expenses face significant litigation risk in California, Illinois, and Massachusetts. The safer approach is to reimburse all documented expenses regardless of size and reserve de minimis for genuinely trivial items.

Worked example: California remote employee requesting internet reimbursement

A California employee works remotely from her apartment in Los Angeles. Her employer requires her to use her personal internet connection for video calls, file sharing, and email. She pays $80 per month for internet. Her apartment is 800 square feet; her home office is 80 square feet, or 10% of the apartment. She also pays $120 per month for electricity and $60 per month for gas (heating).

Under Cochran and California Labor Code §2802, the employer must reimburse a reasonable share of internet, electricity, and heating costs attributable to the home office. The internet is a direct business expense — the employee uses it exclusively for work during work hours and personally during off hours. A 50% allocation is reasonable for internet, producing $40 per month reimbursement. Electricity and heating are allocated by square footage (10%), producing $12 per month for electricity and $6 per month for gas, or $18 per month total.

Total monthly reimbursement: $58. Annual reimbursement: $696. If the employer refuses, the employee can file a wage claim with the DLSE or sue under §2802, recovering the unpaid amount plus attorney's fees. If the employer had a written policy offering a $30 monthly stipend, the employee can recover the $28 per month shortfall plus attorney's fees — the policy does not override the statutory obligation. Under PAGA, the employee can also seek civil penalties of $100 per pay period for the initial violation and $200 per pay period for subsequent violations, dramatically multiplying the exposure.

Audit risk for non-compliant employers

The audit risk for non-compliant employers is substantial and increasing. California's DLSE investigates reimbursement claims as wage claims, with the same enforcement mechanisms as minimum wage and overtime violations. The California Labor Commissioner has prioritized remote work reimbursement claims since 2022, and class actions under PAGA have produced multi-million dollar settlements. Illinois, Massachusetts, and DC have similar enforcement mechanisms through their labor departments.

The class action risk is the dominant exposure. A single California employee's $696 annual reimbursement claim becomes a $696,000 annual exposure for an employer with 1,000 California remote workers — plus attorney's fees and PAGA penalties that can multiply the total several times over. California class action settlements in remote work reimbursement cases have ranged from $1 million to $20 million depending on the size of the class and the duration of the violation. The Illinois and Massachusetts exposure is similar, with treble damages in Massachusetts amplifying the risk.

Workers' compensation and unemployment insurance audits also surface reimbursement non-compliance. When a state auditor examines payroll records, the absence of reimbursement payments for remote workers in reimbursement states is a red flag that triggers a referral to the wage-and-hour division. The cleanest defense is a documented, written reimbursement policy that has been applied consistently across all remote workers in the reimbursement states, with expense reports and reimbursement payments on file.

What to do next

Audit your current reimbursement practices against the seven state reimbursement statutes. For each remote worker in California, Illinois, Massachusetts, Montana, North Dakota, South Dakota, or DC, confirm that you have a written reimbursement policy and that the policy is being applied. If your policy is a flat stipend, verify that the stipend covers actual costs for at least the median employee, and add an actual-expense option for outliers.

Adopt an accountable plan under Treas. Reg. §1.62-2 to ensure reimbursements are excluded from employee W-2 wages. The plan must require business connection, substantiation within a reasonable time, and return of excess within a reasonable time. Document the plan in writing and communicate it to all employees. The plan benefits both the employer (payroll tax savings) and the employee (no income tax on reimbursements).

Finally, train HR and payroll on the multi-state compliance matrix. The reimbursement obligation varies by state, and a single national policy may overpay in some states (compliant but wasteful) and underpay in others (non-compliant and high-risk). Our employer compliance checklist walks through the full multi-state audit, and the multi-state withholding calculator handles the wage-side withholding questions that complement the expense reimbursement analysis.