Beginning on January 1, 2019, Illinois employers will—for the first time—have 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.” “Necessary expenditures” are defined as “all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.” The new law amends the Illinois Wage Payment and Collection Act (“IWPCA”). Prior to the amendment, expense reimbursements were not addressed in the IWPCA and its regulations. As a result, most employers did not treat reimbursements as covered “wages” under the statute.
The amendments require that ordinary business expense reimbursements are no longer voluntary—which means that, because the IWPCA already provides for a private cause of action, including attorney’s fees and liquidated damages of 2 percent per month of any unreimbursed amounts, the potential exposure for litigation increases dramatically. Even for relatively small amounts of unpaid expenses, the incentive for employees to file individual and class actions under the IWPCA is significant considering the penalties and attorney’s fees provisions under the statute.
To comply with the law, employers should:
- review handbooks, policies, or employment agreements to ensure they comply with the new Illinois law. If necessary, create and implement written policies to address issues such as the types of expenses that will be reimbursed and any dollar limits on such expenses;
- ensure than any such handbooks, policies, or agreements require documentation of the reimbursable expenses and provide, at a minimum, that expenses be submitted within 30 days after they are incurred; and
- if the employer’s written policy provides “specifications or guidelines for necessary expenditures” and the employee incurs an expense in excess of those guidelines, the handbook or policy should provide that the company is not responsible for the excess amount, so long as the handbook or policy does not indicate that there is either “no reimbursement or de minimus reimbursement.”
To be reimbursable under the new law, the employer must have “authorized” or “required” the employee to incur the expense (terms which are undefined in the new law). An employee must comply with the terms of any such policy in order to be reimbursed. Further, an employer is not responsible for expenses incurred due to an employee’s own negligence, losses due to normal wear, or losses due to theft unless the theft was a result of the employer’s negligence.
Although many employers already reimburse common business expenses, the new law adds some ambiguity with the terms “required of the employee” and “that inure to the primary benefit of the employer,” which may include unforeseen expenses. For instance, employers should consider any employee duties that include the use of smart phones, laptops, or similar technology related expenses which may require reimbursement. All travel for the employer during the workday is also now reimbursable under the new law. Flaws in practice can result in significant liability. As such, policies should be as clear as possible to avoid future litigation in this area.