Cell Phones and the FLSA

Today’s FLSA Question: I run payroll for a small, full-time paid fire department. In lieu of department-issued cell phones, the fire chief has proposed a $50-per-month flat cell phone reimbursement for members of the command staff. The command staff (non-exempt) are required to have phones and must be available in case of an emergency. Does the FLSA require this reimbursement included in these officers’ regular rate?

That is not an easy question to answer. First, the FLSA is only part of the analysis that should be undertaken. There are also on-call-time, off-the-clock issues, as well as state and local law concerns that need to be thoroughly investigated. While the FLSA does allow certain reimbursements excluded from the regular rate, employers need to very careful when making such an exclusion.

First, the FLSA requires virtually all remuneration included in the regular rate. While there are a few narrow exceptions to this general rule, it is the employer’s responsibility to prove that money given to an employee does not need to be included in the regular rate.

Reimbursements can be excluded from the regular rate if they are reasonably approximate to the expenses incurred, and if the reimbursement is for the employer’s benefit or convenience. Both these conditions need to be met to exclude an expense reimbursement from the regular rate.

Regulations found at §778.217 state, in part:

(a) General Rule. Where an employee incurs expenses on his employer’s behalf or where he is required to expend sums solely by reason of action taken for the convenience of his employer, section 7(e)(2) is applicable to reimbursement for such expenses. Payments made by the employer to cover such expenses are not included in the employee’s regular rate (if the amount of the reimbursement reasonably approximates the expenses incurred). Such payment is not compensation for services rendered by the employees during any hours worked in the workweek.

Here the fire department is reimbursing firefighters for some of the costs associated with a cell phone and cell service. While $50 per month is not insignificant, this amount would most likely be “reasonably approximate” to the costs of maintaining a cell phone and service. In the event the reimbursement is not “reasonably approximate” to the actual expense, the excess amount of the reimbursement would need to be included in the regular rate.

In addition to the amount of the reimbursement, there is another potential concern regarding expense reimbursements and the regular rate. In order for an expense reimbursement to be excluded from the regular rate, the expense cannot be an expense “normally incurred by the employee for his own benefit.”

The same regulations found at §778.217 also contain the following:

(d) Payments for expenses personal to the employee. The expenses for which reimbursement is made must, in order to merit exclusion from the regular rate under this section, be expenses incurred by the employee on the employer’s behalf or for his benefit or convenience. If the employer reimburses the employee for expenses normally incurred by the employee for his own benefit, he is, of course, increasing the employee’s regular rate thereby.

In this scenario, the fire department could potentially be required to prove the cell phone was for the benefit of the fire department and not the employee. This may not be an easy determination, depending on the situation.

To make this topic even more confusing, many states have adopted stricter wage and hour requirements related to expense reimbursements than the FLSA mandates.

In the end, it may be more prudent to issue these officers department cell phones. The cost may be a bit more, but avoiding these potential landmines may very well be worth it. Coincidentally, if you opt to issue department phones, don’t forget to adjust your department policies to reflect both proper phone usage and off-the-clock work!

This is just one of many topics covered in depth at all of the upcoming FLSA for Fire Departments classes. Please consider joining us.

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