Many companies have implemented telecommuting and work-from-home setups for their workforce in response to COVID-19. These new work conditions pose challenges to both employers and employees as they adapt to the abrupt change, especially related to business expenses and expectations of conduct.
If your business faces such circumstances, you should consider implementing, or expanding existing, accountable plans and policies for employees during their temporary setups.
Below, we explain the importance of accountable plans and policies and factors your business should consider during implementation.
What is an accountable plan?
An accountable plan or allowance arrangement that complies with the Internal Revenue Code (IRC) allows a company to reimburse workers for business expenses. This reimbursement arrangement, if properly documented, isn’t considered taxable income to the employee.
An accountable plan must include all of the following rules:
- Expenses must have a business connection
- Expenses must be properly accounted for to the employer within a reasonable period of time
- Excess reimbursement or allowance must be returned to the company within a reasonable period of time
These reimbursements aren’t subject to withholding taxes or W-2 reporting if properly documented. Without an accountable plan, certain charges can’t be considered business expenses and deducted for tax purposes. This could result in an employee receiving additional taxable income.
Businesses that already have accountable plans and policies will want to revisit them and possibly revise them due to the new business environment.
What expenses should be addressed in a plan?
Expenses must be considered ordinary and necessary for your business to run. During the COVID-19 pandemic, businesses will need to question what functions are necessary for their employees to work remotely and continue operations.
Businesses could likely see an increase or need to expense the following for employees:
- Cell phone service, including increased data packages
- Internet service, including increased speed and capabilities
- Newly purchased equipment for home such as computer monitors, keyboards, or other technology
What considerations should go into creating or expanding a plan?
Many businesses already allow some employees to expense certain needs, such as a predetermined sum for their phone or internet bills. It’s important to clearly define exactly what expenses and amounts are now allowed and if there’s a time period when this additional reimbursement will end.
For example, your business may already allow an employee to expense $50 of their monthly cell phone bill. However, as they work remotely, their monthly bill could increase. Your business would need to determine if that $50 reimbursement rate continues, or if the rate would increase to a new amount as a result of expanded usage such as coverage of $100 or some other appropriate amount.
If you provide money to employees in advance for expenses, but the advance is more than the eventual substantiated business expense, employees will need to return the money to your business or it could be taxable to the employee as income.
While updates to the COVID-19 response change daily, in all likelihood, most businesses are only implementing temporary remote work policies. Though it will be difficult to determine an exact date to resume normal business operations, and businesses may resume operations over an extended period of time, your business will want to clearly communicate with employees how this return to work will be implemented.
Businesses will need to consider defining expectations for employee’s return to work to the office or warehouse and reiterate the accountable plan policy and the temporary nature of any additional reimbursements that might have been put in place.
This can help prevent employees from getting comfortable with or expecting certain expenses and benefits, such as faster internet or work-from-home permissions, to continue in the long-term.
For charges to be counted as business expenses, your employees will need to provide proper documentation. Your business should determine what type of documentation, expense reports, or invoices you’ll request from employees in order to provide reimbursement.
Documentation can include internet and cell phone bills or other receipts.
To avoid possible employee discrimination concerns, you’ll need to clearly define reimbursement criteria and how it applies to certain employees or job positions. Clearly defining how employees can request reimbursement for business expenses and what the business will pay for are important.
For example, your business may have previously allowed only its executives or sales personnel who travel frequently to expense phone bills, however, now with employees working remotely, the business might need to expand this reimbursement allowance.
Accountable plans can also set expectations for employee behavior during this temporary situation. This can help your business reiterate that the only aspect of work that’s changed is an employee’s location, and behavior should stay the same.
For example, just as an employee wouldn’t discuss or share sensitive data or company information in public outside of normal business operations, they’re expected not to do so with friends, family, or anyone else who might be present in their new work space during this time.
What challenges should be considered?
COVID-19 is likely presenting an upheaval in many aspects of your employees’ lives. This is why it’s crucial to explicitly and effectively communicate your accountable plans and policies. A thorough document should be provided to all employees, as well as a verification method for employees to acknowledge they’ve reviewed and understand the new or restated policy.
This way—as employees adapt to new child care, elder care, and other challenging personal needs in addition to navigating their job functions from home—they will be reminded of the business expectations and any expanded rules of conduct.
Accounts Payable Overloads
As businesses adapt to the new working environment, some internal departments such as finance or accounting may find increased workloads. Overall, expenses for many businesses have increased due to their remote workforce needs.
As more employees have increased expenses, documentation, and invoices to prepare, keep in mind how this could impact your accounts payable department or other employees who handle expenses.
They’ll likely experience an increased workload in the coming weeks. In general, businesses should consider how the increased coverage of such expenses will likely increase their cost of conducting business.
We’re Here to Help
During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty.
For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: