IRD has published determination EE004 which discusses the reimbursement of employees working from home. Costs incurred as a result of working from home and in connection with employment can be reimbursed by the employer.
Payment Criteria
Under S CW 17(2), a reimbursing payment is treated as exempt income to the extent that it meets the following tests.
The payment must:
- Be paid to the employee in connection with employees’ employment
This means that the expenditure is incurred as a result of the employee performing an obligation required by their employment, employee is deriving income for performing this obligation and expenditure is necessary to perform that obligation.
- Be of a kind that would be ordinarily deductible to an employee if the employment limitation did not apply
The type of expenditure that meets the criteria for the payment includes electricity, gas, telephone and internet charges. Usually, it is all variable utility charges but can also include small amounts of PPE.
Payment Amount
As it would be very difficult to prove by how much an employee’s expenditure has increased as a result of working from home, the determination provides a payment guide. There are payment available for home office equipment and also household expenses.
Home Office Equipment
Employers can choose between the safe harbour and reimbursement option
Reimbursement Option
Under the reimbursement option the amount paid by the employer is either wholly or partially exempt income. The portion of the payment which will be exempt is determined by the extent the employees uses the asset as part of their employment.
- Where the asset is used exclusively for employment purposes, 100% of the reimbursement will be exempt
- Where the asset is principally used for employment purposes, 75% of the reimbursement will be exempt
- Where the asset is not principally used for employment purposes, 25% of the reimbursement will be exempt
If the reimbursement option is selected, the employer will need to know the cost of the asset being bought by the employee and determine the extent for which it is used for employment.
Safe Harbour Option
The safe harbour option allows employers to treat an amount of up to $400 paid to an employee as exempt income. No evidence needs to be kept regarding the payment and this is a one-off payment. Once the payment has been made, any future allowances or reimbursements made by the employer cannot be treated as exempt income.
Allowance for Household and Telecommunication Expense
An employer can pay its employees up to $27 ($20 for household expense and $7 for telecommunication) a week to cover these expenses and the payment will be treated as exempt income. Employers do not need to collect evidence regarding what employees use this payment for.
Effective Date
The determination is in effect from 1 April 2023 and replaces the previous determination EE03.
Determination EE004 is optional, and no employer is obliged to make these payments. Larger employees may consider making these payments as they have greater capacity to do so and will allow them to better support their staff.
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