Earlier last year, due to the onset of COVID-19, many found themselves altering not only how they went about living their daily lives, but also they worked. Many businesses had to quickly pivot to a remote work model and needed to figure out how to successfully support employees working from home. Unfortunately, companies found that many of their team members had suboptimal equipment setups and needed keyboards, monitors, computers, etc. Because of this, many of our Kruze clients asked, 1) “how much should I reimburse employees for home office equipment?” and 2) “How do I execute this?”.
How much should I reimburse employees for home office equipment?
The average range of home office equipment reimbursement is between $500 to $2,000. We recommend $1,000 as it will typically cover everything your employees need to have an effective workstation at home.
How do I execute this?
The second part of the question we get on this is, “how do I execute this?”. Now, this is important because there’s logistics that go along with this as well as payroll tax and IRS issues that you don’t want to mess up.
Here are four options you can choose from for equipment reimbursement:
1. Have a Centralized Process
The first wayis to have a very centralized process. Have your operations team create a predetermined list and then make the recommended purchases on the company’s credit card, have the equipment sent to the team member’s address. This is the simplest way to do it (this is what Kruze does).
2. Offer Virtual Credit Cards
The second best way is to enable virtual credit cards for your team. We typically put companies on Brex or the American Express virtual startup credit card. (We are seeing a lot of growth with Brex and their competitor Ramp these days). You can set up those cards very, very quickly, and easily. And set a limit and then tell your employees what the budget is and they can go and buy the equipment for themselves, have it shipped to them. And because it’s on a company credit card, it comes in the company’s financials very, very easily. Kruze, other accountants, are going to be very comfortable working with this. That’s the second easiest way.
3. Employees Use Personal Cards
The third option is to have the employees use their credit cards and expense their purchases. Now, the danger in this is you’re starting to use a lot of employee time. They have to buy the equipment and fill out the expense report. Someone on your team then has to scrutinize that expense report and make sure it came in under budget.
The IRS requires you to do an expense report if you’re not using the company’s credit card. So just be careful with this, but Expensify and then or Tallie, Emburse are very good platforms that can do this fairly quickly, but it’s not quite as easy as the first two options.
4. Send Employees Money (myleast favorite option… read why)
The fourth option, which we do see some companies doing just because it’s simple, is to send the employee money. Now, this may be an easy option, but it is also the trickiest. If you give your employees money, it needs to run through payroll, treated as a bonus and be taxed. So, if you choose this option, you are probably going to have to gross it up. Ex. Instead of sending $1,000, you may have to give $1,300. You will also need to make sure this is run through payroll. This is crucial or you’ll start getting IRS payroll taxnotifications and penalties.
The second problem with this is you don’t know if the employees bought what they said they were going to buy. They may value having the cash versus having an optimal working environment.
Lastly, just be smart. Make sure you have a system approach to this and don’t wing it. Pick one of the four options above. It will be easy, it will be quick, and most importantly your employees will be happy because they will have all the right equipment, a comfortable work environment, and they can efficiently do their job.
And that’s what everyone wants in this day and age.