Director, Corporate Strategy Motus
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sales tax laws

Tax Tidbit: Applying FAVR to Mobile Device Reimbursement


We’re all so attached to our smartphones, it can be hard to draw a line between usage tied to work or personal life without carrying around two separate devices. But when an organization requires an employee to use their mobile device for work – no matter how small the task – the employee needs to be reimbursed or compensated for that usage. When they aren’t, things can go downhill quickly.

Nov 22nd 2019
Director, Corporate Strategy Motus
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Take, for example, the recent case involving facility management company ABM Industries. Its janitorial staffers were required to use their personal smartphones for small tasks such as clocking in and out or messaging their supervisors when needed. These tasks took only a few minutes here and there.

However, those few minutes here and there added up quickly when a lawsuit against ABM pointed out that these employees should have been compensated for data and cell phone costs under Section 2802 of the California Labor Code. The company ended up settling the case for $5.4 million. That seems like a staggering amount – until you consider the $17.7 million it could have been on the hook for had the case gone to trial.

The California Labor Code is specific to that state, but many others have similar laws that mandate reimbursement for required business use of personal assets, or “mixed-use” assets. Vehicles are another such asset— employees may use their personal vehicles for business purposes. Business driving is one thing, but there is no IRS mileage standard equivalent for mobile phones. This makes reimbursing employees for their device usage challenging.

Most companies deal with this dilemma by paying the full cost of a device or offering a stipend to cover business-related usage. Unfortunately, these methods are costly, inconvenient, inaccurate and lead to tax waste. In many bring-your-own-device (BYOD) programs, stipends are typically just added onto employee paychecks – which means taking money from both employee and employer pockets with every paycheck.

Reimbursing employees can be tax-free when a BYOD program is structured around the Fixed and Variable Rate (FAVR) methodology. By accounting for fixed (device purchase, carrier spend, data plans) and variable (repair, usage fees, localized taxes, etc.) costs on an individualized basis, businesses can deploy an IRS-recognized tax-free reimbursement option.

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