Business Use of Personal Phone: Should You Be Reimbursed?

Why Should Employees Receive Cell Phone Allowances?

According to PeopleKeep, offering a comprehensive benefits package is crucial for attracting and retaining top talent. Employees are more productive and less likely to leave when they receive valuable benefits [1].

Providing monthly reimbursements for personal cell phone plans can significantly reduce turnover.

Beyond attracting and retaining employees, there are legal considerations for offering these reimbursements.

Currently, 11 states, the District of Columbia, and the city of Seattle require employers to reimburse their employees for necessary work-related expenses. States like California and Illinois specifically require reimbursement for employee cell phone expenses

Without a monthly stipend, employees in these states could potentially sue for unpaid wages, as seen in 2022 when California employees sued Amazon for uncompensated remote work expenses, including mobile device use.

While most state and local laws don’t require cell phone expense reimbursement, it remains an attractive benefits option. Many employees desire remote work expense reimbursement. Our 2022 Employee Benefits Survey Report indicates that 47% of remote workers, 39% of hybrid employees, and 27% of in-office workers value internet or phone reimbursement.

What is a Cell Phone Stipend?

According to Compt, a cell phone stipend is a financial allowance provided to employees to help cover the costs of cell phone purchases or plans [2].

Here’s what you need to know:

Also known as cell phone reimbursement stipends, cell phone allowances, or mobile phone reimbursements, these stipends are typically distributed monthly.
Regarding taxation, cell phone allowances are non-taxable benefits.

Benefits of Cell Phone Stipends

Covering your team’s cell phone bill is particularly advantageous when they use their personal phones for:

• Making work calls
• Checking and responding to emails
• Posting updates in work-specific accounts and apps like ClickUp, Trello, or Smartsheet
• Being accessible via Slack, MS Teams, or other internal chat systems
• Testing functionality on mobile devices

If your team members are expected to work long hours, be accessible during off hours, or use their cell phones for work, providing a cell phone stipend is an excellent work benefit.

Is Employer Reimbursement for Cell Phone Use Taxable Income?

According to LSSL, in audit guidance for its examiners, the IRS clarified that employer reimbursements for business use of personal cell phones are not taxable. However, these payments must be for “substantial non-compensatory business reasons,” meaning there should be a clear business need rather than simply providing extra compensation [3].

Employers must demonstrate substantial business reasons for requiring employees to use their personal cell phones for work and reimbursing them. The type of cell phone coverage maintained by the employee should align with the business needs, and reimbursements must not exceed the actual expenses incurred.

Reimbursements should not substitute for regular wages or cover unusual or excessive expenses, as these will be closely scrutinized by the IRS.

The employee will be expected to use his or her personal cell phone for personal use as well as business use, of course. So long as the employer has a substantial non-compensatory business reason for requiring the employee to maintain that personal cell phone, reimbursement to the employee — even for the full cost of the employee’s flat-rate plan — for the use of the phone will not be considered taxable income so long as the employee’s plan is a reasonable plan for the business need.

Reimbursement for unnecessary international or satellite coverage, or patterns of reimbursement that significantly deviate from normal business use, will likely attract heightened scrutiny from auditors.

What is the Average Mobile Stipend Provided to Employees?

According to a survey by Oxford Economics, businesses and public sector organizations that offer mobile phone stipends for BYOD (Bring Your Own Device) employees pay an average of $40.20 per month. This translates to approximately $482 annually per employee.

While some organizations, particularly smaller ones, provide stipends of less than $30 per month, the most common range for monthly reimbursements is between $31 and $50. About 18 percent of companies offer stipends exceeding $50 per month.

How Should You Determine the Amount of Your Mobile Stipend?

To decide on an appropriate mobile stipend for BYOD employees, IT, and business leaders should assess their organization’s mobile usage expectations realistically. The Oxford Economics survey revealed that 53 percent of executives believe employees cannot perform their jobs effectively without a mobile phone, and 57 percent consider mobile devices crucial to workflows.

If your organization views mobile devices as essential work tools and expects BYOD employees to be able to access work remotely from their personal devices, that’s a good sign that you should be providing a stipend.

Also, if you require BYOD employees to install an MDM client on their personal phone to enforce security protections, you should also strongly consider providing some form of compensation.

Related Articles:

• What is a Statutory Employee?
• Employment Wages & Hour Dispute Lawsuits
• When Not to Sign a Severance Agreement?

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References:

1. https://www.peoplekeep.com/blog/how-to-set-up-a-cell-phone-reimbursement-policy
2. https://compt.io/guide/cell-phone-reimbursement-stipends/
3. https://www.lsslawyers.com/articles/is-employer-reimbursement-for-cell-phone-use-taxable-income/