As of January 1, 2019, the Illinois Wage Payment and Collection Act (IWPCA) requires employers to reimburse all “necessary expenditures … incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.” ”Necessary expenditures” means all reasonable expenditures … required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.”
What the employer cannot do regarding its business expense reimbursements policy?
The employer may not impose its employees to submit their expenses’ report less than 30 days after incurring them. However, an employer may adopt a longer period during which its employees can submit their expense reports. In addition, the employer cannot request its employees to substantiate its expenses in all circumstances. In fact, if supporting documentation is nonexistent, missing, or lost, the employee can submit a signed written statement regarding any receipts for its business expenses.
When is the employer not liable for the business expenses incurred by its employees?
If the employees fail to comply with their employer’s written policy, the employer does not have to reimburse the business expenses. Furthermore, if the employees’ business expenses exceed the amounts set in the employer’s written policy, the employer is not liable for the portion of these expenses’ amount in excess of the amounts set forth in its written policy. However, the employer cannot adopt a written policy that provides for no reimbursement or de minimis reimbursement. In addition, if the employer authorized or required its employees to incur the expenses, the employer must reimburse such expenses, even if they exceed the amounts set forth in its written policy.
What does it mean for your business?
Employers hiring employees in Illinois should ensure to implement a written policy regarding expense reimbursements. Especially, such policy should address:
1/ the types of expenses that will be reimbursed; and
2/ any dollar limits on such expenses under normal circumstances.
Note that other states such as California and New York have similar regulations and may also need to be taken into account for implementing a business policy – certain aspects may be different than the Illinois IWPCA provisions.
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This article only includes general information and IMS is not, by means of this article, rendering any tax, legal or other professional services. This communication should not be relied upon for any decision or action that may have an impact on your business. Prior to taking any action, you should be in contact with your advisor.