Cell Phone Reimbursement in California: What Employers Owe
Pull up your P&L and find the line item for the share of your employees' phone bills your business consumes. You won't find one — and that is the problem. Unreimbursed business expenses are the one major wage-and-hour exposure that leaves no trace in the accounting system. Overtime is a number. Break premiums are a number. The phone bill your sales rep pays so your customers can reach her shows up nowhere, accrues at a few dollars a month per employee, and surfaces two years later as a class-wide claim with interest and the other side's attorney's fees stapled to it.
What Labor Code Section 2802 Actually Requires
Labor Code section 2802(a) obligates an employer to indemnify an employee for all necessary expenditures or losses incurred in direct consequence of the discharge of the employee's duties. Two words do most of the work.
"Necessary" is the only real limit — if the expense was reasonably required to do the job, it is covered, and you do not get to decide after the fact that the employee should have found a cheaper way.
"Direct consequence of the discharge of duties" is not the same as "caused by the employer." That distinction has decided cases. And a policy saying we do not reimburse personal device costs buys you nothing: section 2804 makes any agreement by an employee to waive these protections null and void.
Do Employers Have to Reimburse Cell Phones in California? Yes — Even on an Unlimited Plan
This is the single most common compliance gap I see in businesses under 100 employees, and the case law is not close.
In Cochran v. Schwan's Home Service, Inc. (Cal. Ct. App., 2d Dist., No. B247160, 2014), the court held that when an employee is required to use a personal cell phone for work, the employer must pay some reasonable percentage of that employee's phone bill. It then closed the two escape hatches employers reach for. It does not matter that the employee was on an unlimited plan and incurred no incremental charge. It does not matter that someone else — a spouse, a parent, a family plan — actually pays the bill. The employee only has to show the phone was required for work and nothing was reimbursed.
Translation: a stipend of zero is never defensible for a required-device role. There is no de minimis exception hiding in the statute.
California Remote Work Expense Reimbursement Is Not Optional Either
For hybrid or fully remote staff, the same analysis reaches home internet, and often a share of electricity and equipment.
In Thai v. International Business Machines Corp. (Cal. Ct. App., 1st Dist., No. A165390, decided July 11, 2023), the employer argued that the pandemic stay-at-home order — not IBM — caused the employees' home office costs. The Court of Appeal rejected it. Section 2802 turns on whether the expense was a direct consequence of discharging the employee's duties, not on who or what set the arrangement in motion. Operating costs the employer would have absorbed in its own office do not stop being the employer's costs because the work moved to a kitchen table.
The forward-looking conclusion is straightforward: if you require or permit remote work and the employee needs internet, a phone line, or a device to do the job, those are reimbursable.
Mileage: The 2026 Rates, and Why the IRS Number Is a Floor
Employees who drive their own vehicles for work are owed their actual operating costs. Most employers pay a per-mile rate instead, which is permissible — but pick the right one, because the IRS changed it mid-year.
PeriodIRS business standard mileage rateSourceJan 1 – Jun 30, 202672.5 cents per mileIRS Notice 2026-10 (IR-2025-128)Jul 1 – Dec 31, 202676 cents per mileIR-2026-29Calendar year 2025 (comparison)70 cents per mile—
Rates are published on the IRS standard mileage rates page. If your policy still names a 2025 figure, every business mile driven since July 1 has been underpaid.
And the IRS rate is a floor, not a safe harbor. The DLSE said so in a November 5, 1998 opinion letter: the allowance is a reasonable baseline, but if an employee shows actual operating costs exceed it — because you required excess insurance coverage, say — the employer owes the difference.
The Three Ways You're Allowed to Pay It
Gattuso v. Harte-Hanks Shoppers, Inc. (Cal. Supreme Court, No. S139555, 2007) approved three methods, each with a condition attached.
MethodHow it worksThe conditionActual expenseEmployee submits documented costs; employer pays themAdministratively heavy; your reporting process cannot be so burdensome that it deters submissionMileage / per-unit rateMiles × a set rateEmployee may still show actual costs exceed the rate; employer makes up the differenceLump sum or increased compensationFixed stipend, or a bump to salary or commissionYou must provide a method or formula identifying which portion is reimbursement and which is wages — and the employee may still prove it falls short
The third row's condition is where employers lose. A raise "to cover expenses," undocumented and undifferentiated, is legally just a raise. If you use a stipend, put it in writing, state the amount and what it covers, and keep it off the wage side of payroll — reimbursements are not wages, and burying them in gross pay creates a second problem on the wage statement.
What It Costs When You Get It Wrong
The unreimbursed amount is rarely the expensive part.
Interest from the date of each expenditure, under section 2802(b), at the civil judgment rate — per expense, not from the date of a demand.
The employee's attorney's fees. Section 2802(c) writes reasonable costs and attorney's fees into the definition of the necessary expenditure itself. A $900 claim carries a five-figure fee award.
A three-year reach-back. Section 2802 creates a liability by statute, and Code of Civil Procedure section 338(a) sets three years for actions on a statutory liability.
PAGA. Section 2802 carries no civil penalty of its own, so the default penalty under Labor Code section 2699(f)(2) applies — $100 per aggrieved employee per pay period, rising to $200 for a prior finding of an unlawful policy or malicious, fraudulent or oppressive conduct, and subject to the reductions and caps added by the 2024 reforms.
Labor Commissioner citations. Section 2802(d) lets the Commissioner cite an employer directly under section 1197.1 procedure, with the recovery paid to the affected employees.
Ten people at $50 a month of unreimbursed phone and internet is roughly $18,000 in principal across three years — before interest, fees, or penalties.
Your Action Checklist
Inventory every required personal resource — phone, home internet, vehicle, laptop, tools, protective equipment. Ask managers what they actually require, not what the handbook says.
Set a written stipend for each category, stating the amount and what it covers.
Update your mileage rate to 76 cents for miles driven on or after July 1, 2026, and true up anyone paid at a stale rate since then.
Separate reimbursements from wages in payroll — a distinct, labeled non-wage line, never folded into gross pay.
Build a reasonable submission path for employees whose actual costs exceed the stipend, and document that you told them it exists.
Delete any waiver language from offer letters, handbooks, and BYOD policies. Section 2804 voids it, and its presence reads as intent.
Audit the last three years for roles where a device or vehicle was required and nothing was paid.
Talk to Us Before the Demand Letter
Expense reimbursement is the cheapest wage-and-hour problem to fix and one of the most expensive to lose. We handle wage and hour compliance and PAGA defense for California businesses, and our compliance audit is built to catch exactly this kind of quiet, accruing liability. Contact us to set up a review.
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This article is for general informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.