Corporate Cell Phone Policy – How Best To Reimburse?

Matt Dawson's Profile

corporate cell phone policyHi.  My young company has handled corporate cellphone policy (reimbursement) inconsistently over the years.  Currently we have employees with their own phones and plan that get reimbursed via AP (some 100% at exec level and others a fixed amount) and we have a few folks on a company plan that the company pays 100%.  In reviewing the IRS regs it seems clear that we don't comply since we aren't requiring substantiation of business vs personal time.  I want to keep things simple and allow for max company reimbursement in both cases (personal phone or company provided) as our team get email and calls outside "business" hours 24/7.  Does anyone have a recommend here?  From reading the regs, if doesn't seem like we can reimburse 100% unless an employee has a personal phone outside the company provided phone and for personal phones, I don't see any room to reimburse 100%.  My CPA has told me that most small companies don't comply with IRS regs due to either materially and/or cost of compliance (who has time to mark up their phone bill line by line?)  

Any thoughts or suggestions about corp. cellphone policy are appreciated.
Thanks!
 

Answers

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Matt:

I have been through a couple of IRS corporate audits (no personal audits, thankfully) and this has never come up. That said, I do have a company handbook (and always institute one at every company) which clearly lays out the corporate cell phone reimbursement policy. That policy (currently) says that if the employee uses their cell phone more than 50% of the time for company business, the company will reimburse the entire bill, minus any actual private "added toll" calls (that is, personal calls to Estonia that cost $95). We do have folks who line out calls that fall out of line and we do sample the bills on the A/P side before paying out each month.

I would have to think the risk is diminishgly low if you go so far as to have a policy and actually enforce it a bit. That said, I do not work for the IRS (thank god).

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Yes, and we also have this free white paper on

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I think that will help.

Best... Sarah

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In addition to the question corporate cell phone reimbursement, there is a question about personal vs company cell phones. Pretty much everyone has a cell phone these days, so reimbursing for the incremental cost of business use seems fair economically. However, I have worked for companies whose policy is to issue key employees with a company phone on the following grounds (i) they can buy a bigger pool of minutes to be used by Company employees and so get a lower cost advantage, (ii) the Company owns the number, so following the departure of a key employee, calls from customers, and business partners will still be routed to the Company over the Company cell phone during the critical transition period, and (iii) the company has more power to monitor the calls and messages made on the phone, which can be considered as a deterrent value in protecting the Company from transmission of IP, harrassing mesages, and other critical content.

Of course, the fact that an employee may have to carry two phones, one for personal use and the other for company use, can make this inconvenient and unpopular with employees, even if it did save them money! Has anyone else experienced this issue?

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Simon, my last company had a similar policy. The focus was on buying cheaper minutes. I doubt that anyone at the company ever picked up incoming calls after an employee left. It's more likely the phone went in a box somewhere with a bunch of other surrendered phones until disposal. Monitoring never entered into the discussion and, unlike the internal voicemail system, I believe monitoring would be technically and practically more difficult and time consuming, therefore more likely reserved for really messy situations.

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I have found a nice middle ground in offering EE's two options:
1) ER provided Company cell phone (with a policy in place signed by EE that indicates personal use should be deminimus) or
2) Fixed allowance added to payroll (this is a non-accountable plan and thus is taxable to the EE)
Gives the EE some choice while affording some protection for the Company...

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It seems that some common sense is needed by the IRS (because of the 24x7 nature of so many jobs, people are expected to be connected, and because phones are replacing computers) and by employers. This needs to stay a minnow because it is had to see how it adds value to the company's top line. Yet it can consume countless hours and dollars of audit fees for little value.
I always found that when an employee abused a company asset or policy, it was a good sign that he/she was likely not to last long with us. So I would simply give them a warning and hint about the "next stage" consequences. If they really wanted to stay, they'd change; if not, their poor performance took care of it anyway.

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My firm has implemented a cell phone policy where we assume that 25% of the cost of the voice plan associated with their cell phone is personal. We take that 25% of the cost an add it to their taxable income on either their W9 or K-1. We assume that all data is used for business purposes since we operate on a BES and we can monitor the use. We have made a corporate decision not to allow text messaging, so we apply an after-tax deduction to their paycheck for any text messaging packages or charges that show up on our corporate bill.

When we implemented the policy, we didn't hear any complaints from any of the staff and we made each individual opt-in or opt-out of a text messaging plan and certify that they accepted the terms of our policy.

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My expereince was similar, I had various managers approving different cell phone expenses. Finally the company decided to select a single provider and own all the corporate phones. This decision was made in order to ensure customers always had a company phone number and not a personal number that would leave the company with the person.

The problem was trying to manage hundreds of phones, with ever changing plans and people transfering older phones to new people, so others could get the latest phones and options.

Pretty soon it was out of hand and took nearly 30 days each month to reconcile the cell phone program and negotiating a reduction ib change and cancellation fees.

I would stick with personal cell phones and letting department managers approve the proper level of reimbursement. The most important thing is conducting business efficently and not a common policy that restricts business.

Howard Schwedel

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Right on target, Howard. We went through the same nightmare. Now we let employees pick their own plans and have set levels (three different levels) of reimbursement depending upon the business needs for each employee (smart phone or simple cell phone, for example). And we reimburse regardless of personal use - we consider that we are reimbursing them to be AVAILABLE to be reached 24x7. We do get a copy of the bill for reimbursement to keep our plan "accountable" with the IRS.

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Cell phones were considered listed property by the IRS up until 2010, but that changed beginning with 2010 tax years, so the documentation requirements for business vs personal use are now greatly relaxed. Cell phones are now treated as any other normal reimbursable business expense.

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Minimize Cost:
a) Your overall costs will likely be minimized by providing phones on a corp liab plan (cost of personal usage offset by much lower rates).
b) Use a software tool to manage/optimize for cell bills. Most are VERY effective (big ROI). I've recently begun offering one to my clients that monitors usage even before the end of the billing period, allowing you to make plan changes before it's too late.

Simplify Process:
Again, because of low corp rates, you are probably ahead of the game if you just eat the cost of any personal usage, especially when you factor in the drain of tracking it all (plus paying for it has perq value to your employees). But if you don't want to pay for any personal use, then have employees estimate what % of usage will be personal and deduct that percent of the plan cost from payroll every mo. Have the employee validate every six months and adjust. IRS very likely to be an issue either way, per numerous comments above.

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Proformative Advisor
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The IRS made this a significant audit issue approximately two years ago, where they wanted employees to recognize the personal use of cell phones included in W-2’s. I forgot which company was hit with this in an audit, but it eventually became an issue that had to be addressed by senior management in the IRS. Eventually, they issued an internal directive that personal use of company issued cell phones is considered di minimis and no further significant audit issues have come up relating to this. This is not to say you shouldn’t address, this, but the chance of this being a company tax issue has significantly declined. I would recommend that you define the policy and state that personal use should be limited. Practically speaking, those getting cell phones should be the heavy users or are required for their position

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