Expense Reimbursement Requirements by State Key Points
- Federal law only requires reimbursement when unreimbursed expenses cause an employee’s pay to drop below minimum wage.
- Several states, including California and Illinois, require employers to reimburse all necessary business expenses, regardless of their wages.
- Reimbursement obligations are based on where the employee works, not where the company is headquartered.
- Remote work expenses like internet, cell phone use, and home office equipment may be reimbursable when remote work is required rather than optional.
Expense reimbursement compliance is not a one-size-fits-all situation. Federal law sets a narrow baseline, but different states have different requirements.
Here’s what employers need to know in 2026.
Federal Employee Expense Reimbursement Requirements
At the federal level, under the Fair Labor Standards Act (FLSA), employers are only required to reimburse expenses to an employee when those costs would bring an employee’s effective hourly wage below the minimum wage.
That narrow scope is why many states and individual companies have gone further.
Related: Employee Expense Reimbursement Explained
Employee Expense Reimbursement Requirements By State
Not every state or jurisdiction has a provision for employee reimbursements, but many do. Here’s the updated list for 2026:
California
California has the strictest reimbursement standards in the country. Under California Labor Code 2802, employers must reimburse employees for all necessary expenditures or losses incurred as a direct result of performing their job duties.
Courts interpret “necessary” pretty broadly here. That includes tools, equipment, and a reasonable portion of remote work expenses like internet and cell phone use - even if the employee has an unlimited plan and doesn’t pay extra charges.
Reimbursements must be made promptly, generally within 30 days, and non-compliance can trigger waiting time penalties and liability for the employee’s attorney’s fees.
Illinois
Illinois requires employers to reimburse all necessary expenditures within the scope of employment under the Wage Payment and Collection Act. Expenses must be authorized by the employer or reasonably related to the employee’s role.
Employees generally have 30 days to submit reimbursement requests with documentation, unless a written company policy allows more time. For remote workers, expenses are reimbursable when remote work is required, not simply a personal preference.
Montana, North Dakota, and South Dakota
These three states all impose broad reimbursement obligations with similar statutory language, requiring employers to cover all necessary expenses incurred as part of an employee’s job duties.
While the exact wording varies slightly, the practical takeaway is the same - if an expense is required to do the job, it’s likely reimbursable.
Related: What Are Reimbursable Expenses?
Iowa and New Hampshire
Both states require reimbursement with a 30-day payment deadline once a valid claim is submitted. Iowa adds a procedural wrinkle: if an employer denies a reimbursement request, they must provide written notice explaining why.
New Hampshire’s requirement applies to expenses that are necessary for the job, regardless of the employee’s wages, making it somewhat broader than a pure minimum-wage protection.
New York and Pennsylvania
Neither state mandates reimbursement outright, but both create enforceable obligations when an employer has committed to reimbursement in a written policy, employment agreement, or offer letter.
In New York, breaking that promise can result in penalties under state wage payment laws. Pennsylvania gives employers up to 60 days to pay once a valid claim is submitted.
The takeaway is that if your company policy says you’ll reimburse something, you’re legally on the hook for it in these states.
Massachusetts
Companies in Massachusetts are only required to reimburse their employees if an expense would cause their pay to fall below the state’s minimum wage (not necessarily the federal minimum wage).
Minnesota and Washington, D.C.
Both Minnesota and Washington, D.C. only require employers to cover the cost of tools and equipment necessary to perform an employee’s work.
Seattle, Washington
Washington state doesn’t broadly require expense reimbursement beyond the FLSA baseline, but the city of Seattle is a different story.
Under Seattle’s Wage Theft Law, employers must reimburse employees for all necessary business and remote work expenses incurred while working within city limits.
If you have employees based in Seattle, the local rule applies regardless of what state law says.
Is your state not listed in the above list?
Then you most likely are only technically required to reimburse your employees if their take-home pay will fall below the federal minimum wage. Still, most companies choose to reimburse work-related expenses and mileage as it can help employees feel fairly compensated for their work, and it can help retain high-quality employees.
What Counts as a Necessary Expense
The word “necessary” does a lot of work in these laws, and it’s a common source of disputes. Generally speaking, a necessary expense is one an employee must incur to perform their job, not a cost driven by personal preference or convenience.
For remote workers, this hinges on whether remote work is required or optional. When an employer has closed its offices or operates fully remote, home office expenses are more likely to qualify.
When an employee chooses to work from home despite having access to a company office, those same expenses are harder to justify as necessary.
Related: Employee Travel Reimbursement Explained
Common reimbursable remote work expenses in stricter states include a reasonable percentage of monthly internet and cell phone bills, required home office equipment, and supplies needed to do the job. What typically doesn’t qualify are things like rent or mortgage payments, daily commuting costs, and personal upgrades beyond what the role actually requires.
Vehicle and mileage expenses are another common category. In states with broad reimbursement laws, employers may be required to cover mileage or vehicle costs when driving is necessary for their work.
Visiting clients, traveling between job sites, and similar tasks are often reimbursed to employees. Flat car allowances can create compliance risks if they fall short of an employee’s actual driving costs, so many companies choose to use the standard IRS rate instead.
How to Stay Compliant With Employee Expense Reimbursement
One common situation is having employees in multiple states. In this scenario, reimbursement obligations follow the employee’s work location, not your company’s headquarters. A business based in Texas with an employee working in California is subject to California’s rules for that employee.
Most employers handle this in one of two ways. Some adopt a single policy based on the strictest applicable standard (often California’s) and apply it uniformly across their entire workforce.
Others maintain a core policy with state-specific addendums that reflect local requirements. The key is being consistent and clear to your team.
On the tax side, reimbursements are only tax-free to employees when they’re run through an IRS accountable plan. Expenses must have a clear business connection, employees submit documentation within a reasonable timeframe, and excess reimbursements are returned.
Without that structure, reimbursements become taxable wages.
Related: Mileage Reimbursement Requirements By State
State Expense Reimbursement Requirements FAQ
Does my company have to reimburse expenses if we’re not based in California?
It depends where your employees work, not where your company is headquartered. If an employee performs their job in California, Illinois, or another state with reimbursement laws, those state rules apply to them regardless of where your business is located.
Are remote work expenses always reimbursable?
Not automatically. In states with broad reimbursement laws, remote work expenses are generally reimbursable when remote work is required by the employer. If an employee chooses to work from home while a company office is available, those expenses are less likely to qualify.
What happens if we have a written reimbursement policy but don’t follow it?
In states like New York and Pennsylvania, a written reimbursement commitment is legally enforceable. Failing to honor it can result in wage payment penalties on top of the original unpaid amount.
Do reimbursements go through payroll?
Only if your program doesn’t qualify as an IRS accountable plan. Reimbursements under a compliant accountable plan are not considered wages and don’t go through payroll. Under a non-accountable plan, they’re treated as taxable compensation.
Conclusion
Expense reimbursement compliance isn’t glamorous, but it’s one of those areas where the cost of getting things wrong tends to be much higher than the cost of getting it right.
A clear written policy, an understanding of the rules in every state where your employees work, and a consistent process for handling claims will cover most of your bases.
Looking for an easy way to manage reimbursable employee expenses and mileage? Automated tools like TripLog help make every aspect from tracking to approvals a breeze.
Schedule a demo for your team and see how consolidating your team’s mileage and expenses can help you stay compliant!
