Covid has changed the landscape of our world. Our everyday living situations, from how we interact with other people, to how we run our businesses has changed in an all-encompassing way. I could write pages and pages on the changes heaped upon us, but we are aware of these things already, its almost become old news. Today I will focus on employee reimbursements for when you are working from home – covering who pays what, and how much is to be paid.
Historically, amounts paid to an employee from an employer is considered ‘taxable income’ to the employee, unless the payment is exempted under sCW 17 in the “Income Tax Act 2007”. The legislation states for the payment to be exempt, and it must be for expenses that would ordinarily be deductible to the employee if the limitation did not apply.
Employers have often found the administration behind these payments difficult, and it can be hard to determine what is a true reimbursement.
The IRD has published several determinations over the past couple of years to make this clearer. The Covid pandemic, and the need for employees to work from home, has made this guidance even more important.
The most recent determination that has been issued is – Determination EE003: Payments provided to employees that work from home, Employee use of telecommunications tools and usage plans in their employment (what a mouthful!). This applies to payments to employees from 1 October 2021 – 30 March 2023.
To apply for this guidance:
- The employer must make a payment to an employee for expenses incurred.
- The payment must be made because the employee is doing their job and must not be private in nature.
- The expenditure must be necessary in order for the employee to perform their job.
It is important to note that this determination is not binding – this means that employers are not legally required to pay employees this reimbursement.
Work from home reimbursement
There are some options available:
- The employee works from home and does not use their personal telecommuncation tools or plan. The employee can be paid up to $15 per week and treat this as exempt income.
- The employee works from home and uses their personal telecommunication tools or plan. The employer can then choose:
- De Minimus option – pay the employee up to $20 per week.
- Principally business use option – when telecommunicaton and plan is mainly used for business – pay the employee up $15 per week, plus up to 75% of the employees total usage plan.
- Principally private use option – when telecommunicaton and plan is mainly used for private use – pay the employee up $15 per week, plus up to 25% of the employees total usage plan.
Payments for newly purchased furniture, equipment and telecommunications
The IRD recognises that an employee may need to purchase personal home office equipment and furniture in order to work from home. The employee would incur a deprecation loss but they are unable to claim this due to the employment limitation. If an employer wants to reimburse an employee there are two options:
- The safe harbour option – pay up to $400 to the employee (treat as exempt income). Note that this is a total of $400, not per item. This option eliminates the need for the employer to identify which cost is for home office and business use vs personal use.
- The reimbursement option – the employer can reimburse the employee for the item(s). The amount of the reimbursement will depend on usage – e.g. if it is used 100% for employment then it is 100% reimbursed. If it is used 75% for employment then 75% reimbursed, and so on. This option can be admin heavy if the employer has a number of employees, and the employer will need to ensure that the asset is indeed being used for business. The safe harbour option (first option) removes the need for this.
Each business is different and has it’s own idiosyncrasies, so please feel free to contact me to discuss your options. I can help you to work out the best option for you and your employees.