Reimbursing Employees for Bring Your Own Devices (BYOD)

Reimbursing Employees for Bring Your Own Devices (BYOD)

Reimbursing Employees for Bring Your Own Devices (BYOD)

Reimbursing employees using their own mobile phones or laptops is undergoing some revision by Inland Revenue.

This follows the adoption by many businesses of optional Bring Your Own Device (BYOD) policies where employees provide their own mobile phones or laptops for business use.

In the case of mobile phones, employers may wish to contribute to the monthly plan charges from the employees telecommunications provider.

Where an employee is providing their own hardware, like a laptop or tablet device, the employer may wish to reimburse the employee for any depreciation of that asset.

The department has recently released an exposure draft signalling that they wish to make a determination on employees using their own telecommunications equipment for business use.

The department has envisaged three different scenarios.

Class A

The first class involves situations where an employee is required to provide their own telecommunications equipment principally for business use. This might be covered in an employment agreement or policy manual. An example would be someone who is on call at any time to deal with work related emergencies.

Specifically, class A covers scenarios where:

  • an employer enters into an arrangement with the employee whereby the employee will provide their own telecommunications tools and usage plan, or
  • the arrangement involves the employee using their own usage plan; and
  • the employee incurs the cost of the telecommunications tools and the usage plan or the cost of the usage plan alone and there is reimbursement; or
  • in the case of reimbursement, an estimated amount or allowance represents a reasonable estimate of the likely expenditure to be incurred by the employee; and
  • the telecommunications tools and usage plan are principally used by the employee in their employment, and the employee also uses the tools and usage plan or usage plan alone for private use; and
  • there may also be an amount relating to depreciation loss.

In situations that fit Class A, employers can treat 75% of the amount paid (the total bill amount) either by reimbursement or by allowance for usage plans, as exempt income of the employee. That means that this proportion of the reimbursement does not incur income tax.

Put another way, if the employer reimburses 100% of the bill, then 25% will be taxable as income in the hands of the employee.

Any depreciation loss must be calculated at the application depreciation rates published by Inland Revenue. So, for an employee providing their own laptop that meets the employers specifications, an estimate of the average cost of the laptop would be made by the employer. The applicable amount of depreciation could then be paid to the employee as exempt income.

Class B

Class B covers situations where an employee is required to provide their own telecommunications equipment based on a business reason and utilises them for private use. This differs from Class A in that the principal use is not for business. A typical situation might be where an employee is using their own home internet for business purposes.

  • an employer enters into an arrangement with the employee whereby the employee will provide their own telecommunications tools and usage plan, or
  • the arrangement involves the employee using their own usage plan; and
  • the employee incurs the cost of the telecommunications tools and the usage plan or the cost of the usage plan alone and there is reimbursement; or
  • in the case of reimbursement, an estimated amount or allowance represents a reasonable estimate of the likely expenditure to be incurred by the employee; and
  • the employee is required to use telecommunications tools and usage plan in their employment based on a business reason and also uses the tools for private use; and
  • there may be an amount relating to depreciation loss.

For Class B cases, the exempt income rules are reversed. Employers can treat 25% of the amount paid by reimbursement or by allowance for usage plans as exempt income of the employee. If employers pay the total bill, 75% would be taxable. If the employer pays 25% of the total bill as an allowance or reimbursement, then the whole amount paid is exempt.

Depreciation loss is calculated using the Commissioner’s rates for the items.

De Minimis Class

This category covers situations where:

  • an employer enters into an arrangement with the employee whereby the employee will provide their own telecommunications tools and usage plan, or
    the arrangement involves the employee using their own usage plan; and
  • the employee incurs the cost of the telecommunications tools and the usage plan or the cost of the usage plan alone and there is reimbursement; or
  • in the case of reimbursement, an estimated amount or allowance represents a reasonable estimate of the likely expenditure to be incurred by the employee; and
  • the employee is required to use telecommunications tools and a usage plan in their employment based on a business reason and also uses the tools and usage plan for private use; and
  • there is a payment of no more than $5 per week per employee, amounting to no more than $265 per year, as a reimbursement or an allowance in relation to the use of telecommunications tools and a usage plan or the cost of the usage plan alone.

In this case, the $5 per week, amounting to not more than $265 per annum, is exempt income and therefore not taxable.

It probably goes without saying but these rules are intended to apply only to employees and where these tools are necessary for an employee to do their job.

The determination would not apply if any reimbursement (based on an estimate of use) or an allowance can be evidenced as being an amount that does not exceed the actual or reasonable estimate of business use.

The rules have some complexity so as always, we recommend getting a tax opinion that matches your unique circumstances. Generate Accounting is able to provide quality advice in this area so please don’t hesitate to get in touch.

Angus is the CEO and founder of Generate Accounting.