Hey there, California business owners—have you ever texted an employee after hours or had your team clock in through an app? If so, you might be setting yourself up for a costly legal surprise. Without a formal cell phone reimbursement policy, you’re at risk regardless of your company’s size.
The Shocking Truth Most Employers Miss
Let’s talk about what’s happening with the California cell phone reimbursement law. I’ve seen countless businesses caught off guard by this one. Here’s the deal: anytime employees use personal phones for work—even checking a work email or taking a client call—California law says you need to reimburse them.
Think about your typical workday. Your manager texts about schedule updates. Your sales rep takes client calls while out of the office. Your delivery driver uses Google Maps to find addresses. All these everyday scenarios trigger mandatory reimbursement obligations, even if the phone use is occasional.
The Legal Hammer: Understanding Labor Code 2802
This requirement stems from Labor Code Section 2802, which mandates that employers reimburse employees for necessary work expenses. The 2014 case Cochran v. Schwan’s Home Service, Inc. made it clear that employers must reimburse employees for cell phone usage, even if they have unlimited plans.
The court ruled that when employees must use personal property for work, employers should cover a reasonable percentage of the cost, regardless of whether extra expenses were incurred.
Most companies find that a reasonable reimbursement falls between $25 and $50 per month. Some businesses provide company phones instead, which is perfectly compliant and makes sense if you have security concerns.
Real-World Consequences: Businesses That Learned the Hard Way
This isn’t just a matter of legal theory—real companies have faced serious consequences.
- Schwan’s Home Service ultimately settled a class-action lawsuit after failing to reimburse sales representatives for business-related cell phone expenses.
- Victoria’s Secret faced a California class-action lawsuit when employees weren’t reimbursed for using personal phones to access work schedules through a company app, eventually settling for $12 million².
The statute of limitations extends back four years, meaning potential liabilities can accumulate substantially before an employer realizes there’s a problem.
Save Your Business Today: Proven Reimbursement Methods
Implementing a compliant cell phone reimbursement policy doesn’t have to be a headache. Consider these approaches:
The Simple Stipend Solution provides a consistent monthly reimbursement, usually $25 to $50, for employees using personal phones for work. One restaurant owner I work with adds a standard $30 “phone allowance” to paychecks each month.
If you have employees with different usage patterns, consider the Precision Percentage Method. Calculate business use as a portion of total usage and reimburse accordingly. Your sales team might receive 50% coverage, while office staff who occasionally check emails might receive 15%.
You may also want to consider bundling a cell phone.
A cell phone/internet allowance will automatically be paid to employees each month for the purposes of business use of personal equipment. All allowances paid are subject to local, state, and federal taxes.
Whatever approach you choose, create a written mobile phone reimbursement policy that clearly outlines who receives what and why. Have employees acknowledge it during onboarding and keep those records for at least four years.
Your Action Plan for Compliance
Getting compliant with the California cell phone reimbursement law is straightforward:
- First, look at your workplace practices. Are employees using phones for anything work-related? A retail manager I know was surprised to discover her team regularly used personal phones to check inventory—a clear reimbursement trigger she hadn’t considered.
- Next, develop a policy that aligns with the requirements of Labor Code 2802 for cell phones. Be specific about who qualifies and how you’ll calculate reimbursements.
- Finally, communicate clearly with your team and maintain signed acknowledgments. This documentation serves as your safety net in case questions arise later. Review your policy annually as technology and work patterns evolve.
Why This Matters Beyond Legal Protection
Beyond avoiding lawsuits, fair reimbursement practices demonstrate to your team that you respect the boundaries between work and personal life. In today’s competitive hiring environment, showing that you value employees’ resources can have a significant impact on retention. There are also several strategic and practical reasons, such as:
1. Cost-Effective BYOD (Bring Your Own Device) Strategy
Instead of issuing company-owned phones and internet hotspots, which require purchasing, tracking, and maintaining equipment, a flat allowance lets employees use their own devices while the company contributes to the cost. This reduces overhead and asset management complexity.
2. Remote and Hybrid Work Support
With more employees working remotely or in hybrid settings, the company recognizes that personal internet and phone usage often overlap with business needs. This policy helps offset those costs fairly, especially when work depends on reliable connectivity.
3. Tax Compliance
By stating that the allowance is taxable, the company stays compliant with IRS rules, which generally treat flat allowances for personal devices as taxable income (unless detailed substantiation is provided) and avoids misclassification that could trigger audits or penalties later.
4. Employee Satisfaction and Transparency
Offering an allowance acknowledges that employees are absorbing some business costs. This can improve morale and retention, show respect for their personal resources, and avoid resentment from being expected to cover business expenses without reimbursement.
5. Administrative Simplicity
A flat, automatic monthly allowance reduces the need for submitting itemized expense reports, streamlines payroll processes, and provides a predictable cost to budget for.
Many employers find that proper reimbursement policies improve employee responsiveness, as staff no longer feel their resources are being exploited without compensation.
The Bottom Line
To stay compliant and protect against legal risk, businesses should implement a clear written reimbursement policy, choosing either a flat monthly stipend (typically $25–$50) or a percentage-based method tailored to usage. Policies must be transparent, signed during onboarding, and regularly reviewed.
Beyond legal protection, offering cell phone/internet allowances also supports remote work, simplifies admin, improves tax compliance, and boosts employee satisfaction—making it a smart business move. Don’t let an overlooked expense policy become your company’s costly legal nightmare.
Jilian Dimitt, SPHR, SHRM-SCP, is the vice president of human resources for Optima Office, Inc., the industry’s leading outsourced HR and Accounting services provider in California. She is a seasoned HR consultant with over 25 years of experience helping businesses build strong, compliant, and people-focused workplaces. She specializes in employee relations, compliance, recruiting, and HR strategy for small to mid-sized companies. Jilian holds dual SPHR certification and has studied HR Management at UCLA and UNLV.
If your small business needs assistance with this policy creation or broader human resources support, please don’t hesitate to reach out to Optima Office, Inc. We specialize in providing outsourced or part-time accounting and HR services to companies of all sizes across every industry. We’re here to help. Email: jilian@optimaoffice.com, LinkedIn: https://www.linkedin.com/in/jdimittsphr/
Photo courtesy Andrej Lišakov for Unsplash+
