The Illinois Wage Payment and Collection Act was amended effective January 1, 2019. This law places new requirements on reimbursements of employees. Here’s everything you need to know.
With the latest amendment to the Illinois state labor code, organizations operating in that state will need to revisit their employee reimbursement policies immediately. The Illinois Wage Payment and Collection Act (IWPCA) now falls under the category of an expense indemnification labor code. The following Q & A will guide you through the ramifications of the IWPCA for any business operating in Illinois—as well as for organizations operating outside of Illinois as similar laws may proliferate under pressure from tax reform.
What is an expense indemnification labor code?
Several states have expense indemnification laws requiring the proper reimbursement of employees for employer expenses. These laws are designed to ensure two things:
- Organizations do not pass on business expenses to employees.
- Employees’ wages are not impacted by the employer’s expenses.
In a nutshell, unreimbursed business expenses effectively lower an employee’s wages. Therefore, in all fairness state legislatures have increasingly moved to protect employee wages by dictating full reimbursement of business expenses.
Which states have expense indemnification labor codes?
Nine U.S. jurisdictions currently place expense reimbursement requirements on employers:
- New Hampshire
- North Dakota
- South Dakota
- Washington D.C.
What business expenses are included in indemnification labor codes?
These codes cover a variety of employer expenses that often go beyond the obvious to include personal items used for work purposes:
- Personal vehicles
- Personal cell phones
- Personal laptops and tablets
- Data plans and internet bills
When an employee is expected to use his or her own personal equipment to get the job completed, the employee should be properly reimbursed for the business use of personal equipment. The largest expenses derive from the use of personal vehicles.
What is the Illinois Wage Payment and Collection Act?
The IWPCA aims to ensure that Illinois employees are paid in a fair manner. While the law primarily seeks to address overtime and minimum wage claims, the IWPCA also lists other worker protections:
- Frequency of wage payments (at least semi-monthly)
- Employee notification of pay rate and method of pay
- Prohibitions on wage deductions unless certain conditions are met
- Timing of final wage payments after employment ends
What do the new amendments to the IWPCA require?
The January 1, 2019 legislation broadened the IWPCA to include employee reimbursements. Under the amended law employers must reimburse employees for all expenses within the scope of their employment “directly related to services performed for their employer.”
This change firmly places the IWPCA under the category of an expense indemnification law so that the expenses listed above (personal vehicle, laptop, phone, etc.) now may fall under the amended labor code.
The new Illinois labor law stipulates the following procedures:
- Employees must submit the expense request and appropriate documentation within 30 calendar days, unless the employer’s expense reimbursement policy specifies otherwise.
- The employee must provide a receipt or a signed, written statement if a receipt does not exist or has been lost.
- The employer must authorize or require the employee to incur the expense.
One thing to note is the employer is not responsible for an employee’s losses due to their own negligence which, would include losses due to normal wear or theft, unless the theft was a result of the employer’s negligence.
How will the Illinois labor law affect my business?
If you have employees operating within the state of Illinois, you need to pay close attention to the new law. While it remains to be seen how broadly the courts will interpret the law’s indemnification of employees, precedent from other states can prove a helpful indicator.
As The National Law Review points out, the California labor code, section 2802 (a), contains essentially the same language as the IWPCA amendment, and California courts have expansively interpreted employer expenses to include personal items (e.g. vehicles, phones, data plans, etc.) used in service of job responsibilities.
Two notable exceptions exist. The Illinois amendment exempts organizations with an “established written expense policy” if an employee fails to comply with that written expense reimbursement policy. Similarly, employers maintaining written guidelines for “necessary” expenditures are not liable for expenses exceeding the expenditure amount—“so long as the employer does not institute a policy that provides for no reimbursement or de minimis reimbursement.”
In other words, the first step you ought to take to protect your business is clear: establish written expense reimbursement policies specifying the amounts and requirements for any such reimbursement.
How will the tax reform impact labor codes?
It’s important to know that the tax reform eliminated a popular deduction that many mobile employees relied on: the unreimbursed business expense deduction. (A mobile employee is an employee that needs a car to get their job done.)
Mobile employees weren’t the only ones relying on the unreimbursed business expense deduction—quite a few employers relied on it as well. These companies relied on their employees to “true up” during tax time, which would “simplify” their reimbursement policies. The new tax code removes this popular deduction for the next seven years (tax years 2018 through 2025).
This change bears several ramifications for companies across the United States:
- Organizations will have to change their reimbursement policies.
- There will be an increase in lawsuits in states with indemnification codes.
- There will be an increase in states adopting indemnification codes.
Consequently, if your organization operates in multiple states, it’s wise to go ahead and make sure all employee reimbursement policies uniformly comply with laws like the Illinois Wage Payment and Collection Act.
If you would like guidance on how to review and amend your organization’s vehicle reimbursement policies, contact mBurse today.