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What Is Remote Work Allowance – A Comprehensive Guide to Remote Work Allowances, Stipends & Tax Relief

Remote Work Allowance

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Key Takeaways
  1. A work-from-home stipend, or allowance, is an extra sum of money provided to employees on top of their regular salary to enhance their remote working experience and efficiency.
  2. Salaries are considerably larger than stipends and are subject to minimum wage regulations. In contrast, stipends are much smaller and are generally a fixed amount across the organization.
  3. The benefits of a work-from-home stipend, or allowance, are a strategic investment in the workforce and the company and can boost employee satisfaction, performance, and retention by facilitating a better-equipped and comfortable working environment.
  4. Remote work allowances are taxable income and are available depending on the employee’s location.

Since the COVID-19 pandemic redefined our lifestyles, remote work has become a staple for people across the globe. While many have adapted to this shift, embracing the “new normal” in working, it’s often accompanied by its fair share of hiccups—unpredictable video calls, makeshift offices in dining areas, and the constant presence of family life are just some of the daily challenges.

Though it’s unlikely that the pandemic spells the total demise of traditional offices, the trend towards working from home seems set to continue for the foreseeable future.

Recognizing the feasibility and numerous advantages of remote operations, many companies are now more open to, or even encouraging, prolonged or permanent remote working arrangements.

What Is a Work From Home Allowance?

A work-from-home stipend, or allowance, is an extra sum of money provided to employees on top of their regular salary to enhance their remote working experience and efficiency.

These stipends are increasingly becoming a desirable, and sometimes legally required, perk for those working remotely.

While WFH stipends might appear as an additional expense, providing this perk can significantly enhance your company’s appeal in the remote work landscape.

What Is the Difference Between a Stipend and a Salary?

An employee’s salary is the financial remuneration provided for their work, while a stipend is a supplementary, typically smaller, amount of money intended to assist employees with their job-related expenses.

Salaries are considerably larger than stipends and are subject to minimum wage regulations. In contrast, stipends are much smaller and are generally a fixed amount across the organization.

The variation in salary often reflects the employee’s role and performance within the company, whereas work-from-home stipends tend to be uniform, reflecting the cost of necessary equipment and expenses rather than individual performance.

The purpose of these payments also differs: salaries are the primary compensation for the employee’s work, offering complete discretion in spending. Stipends, conversely, are not directly tied to the work output but are meant to facilitate better and more comfortable working conditions.

Finally, the payment structures for salaries and stipends differ. Salaries are usually disbursed monthly or bi-monthly, while stipends might be distributed as a one-time amount or on a regular monthly or annual basis.

What Are the Benefits of a WFH Stipends?

A work-from-home stipend, or allowance, is additional funding provided to employees over their regular pay to enhance their remote working conditions, making them more productive and comfortable.

Such stipends are increasingly seen as a compelling, and sometimes a legally required, incentive for remote employees.

While it may initially seem like an extra financial commitment for the company, providing a work-from-home stipend is an effective strategy to distinguish a company in the realm of remote work.

  1. Varieties of Work-from-Home Stipends: Work-from-home stipends vary widely. Some organizations provide a one-time amount, while others might offer a regular monthly contribution. These stipends can either be a lump sum for employees to use as they see fit or designated for specific expenses such as internet services, office equipment, or software subscriptions.
  2. Management needs to define clear guidelines regarding the amount of the stipend, eligible expenses, and spending limits per category. This might include a one-off payment for ergonomic furniture as well as ongoing support for utility bills.
  3. Distinguishing Between Stipend and Salary: A salary is the primary, larger monetary compensation given to employees for their services. In contrast, a stipend is a supplementary, usually smaller, amount aimed at supporting the employee’s work-related needs.
  4. Salaries vary according to an employee’s role and performance and are typically more substantial than stipends, which are often a fixed amount across the organization and are determined by the estimated cost of necessary equipment and expenses.
  5. The purpose of these payments also differs: salaries are the primary remuneration for the employee’s contributions, while stipends are intended to aid in creating a more efficient and comfortable work environment.
  6. Salaries are usually paid out in regular intervals, such as monthly or bi-monthly, while stipends can be distributed as one-time gifts or on a set schedule.
  7. Advantages of Offering WFH Stipends: Although not compulsory, providing a work-from-home stipend is a strategic investment in the workforce and the company. Companies can boost employee satisfaction, performance, and retention by facilitating a better-equipped and comfortable working environment.
  8. Attractiveness to Potential Employees: As remote and flexible work arrangements become the norm, companies that offer distinctive perks like WFH stipends are more appealing. Surveys show that most employees might favor benefits and perks, such as a stipend, over equivalent salary increases.
  9. Enhancing Employee Engagement and Retention: Perks are about attracting talent and playing a crucial role in keeping employees happy and motivated. A valued and supported workforce is likelier to stay committed and deliver quality work, contributing to long-term retention.
  10. Boosting Productivity: An under-equipped or uncomfortable home office can hinder an employee’s output. Viewing home office stipends as an investment in the workforce, companies can remove barriers to productivity, allowing employees to create a more effective and pleasant work environment.

Are Work From Home Allowances Taxable Income?

A work-from-home stipend is subject to taxation in many countries worldwide, with the specifics varying from one region to another. It’s crucial for companies, particularly those with international employees, to understand and adhere to local tax laws to avoid any legal repercussions.

In the United States, all forms of monetary compensation, including salaries and stipends, are taxable. Therefore, work-from-home allowances are typically taxed as income. However, there’s an exception when employees purchase equipment up to a certain amount and get reimbursed through a stipend program; this can be non-taxable, provided all expenses are demonstrably for business purposes.

Without a structured reimbursement plan or if employees don’t comply with such a plan, these allowances might be treated as taxable income.

Internationally, various countries have their own rules and exceptions. For instance, in Belgium, companies can provide each employee with a €130 stipend exempted from tax. This approach encourages businesses to utilize stipends, offering a tax-efficient benefit over increasing salaries, which would be subject to income tax.

How Much Is a Typical Work-From-Home Stipend?

When initially contemplating the introduction of a work-from-home stipend, businesses often fear that it might be overly costly and complex to administer. However, the nature of stipend programs is inherently flexible, allowing each business to tailor a scheme that aligns with its financial and operational capacity.

Typically, companies offering stipends provide a range, ranging from $250 per month to a one-time payment of $1000.

The advantage for businesses is the ability to recalibrate their budget for business expenses, striving for a solution that doesn’t negatively affect their financial statements while still offering substantial support to their remote workforce.

In the United States, under the federal Fair Labor Standards Act, there’s an obligation for employers to reimburse home office expenditures if failing to do so would reduce an employee’s earnings below the minimum wage of their state. Additionally, certain states like Illinois, California, Montana, and Iowa have their own specific rules regarding the reimbursement for remote workers.

Who Should Pay for a Home Office?

The central question revolves around who should bear the cost of work setups. Typically, employers are responsible for providing a workspace, which involves leasing office space, equipping it with furniture and computers, and ensuring a comfortable environment—all standard operational expenses.

The situation doesn’t change much when the workspace shifts to an employee’s home. To maintain productivity and comfort, employees need a conducive environment, which includes reliable internet access and the necessary work equipment. Over time, a truly effective setup might involve more than just the basics, potentially extending to ergonomic furniture to ensure long-term comfort and well-being.

Given the shift to remote work, businesses often see reductions in costs associated with physical office spaces, while employees might incur higher expenses related to utilities and setting up a functional home office. This leads to the question: shouldn’t employers reallocate some of the saved funds to cover these new, employee-incurred costs?

In cases where companies are not prepared to increase salaries to accommodate for remote work expenses, this is precisely the scenario where introducing a remote work allowance becomes pertinent.

The Hidden Costs of Remote Work

When you look at the cost of remote work, you may be led to think that it’d be much less than it costs your workers to head to the office each day. 

After all, remote workers don’t have to pay for transport or refuel their cars as often, and they can wear what they want (when not on video, of course!). 

This isn’t quite the case, however. Productive remote work is influenced by several factors that start to pile up the pennies. Laptops and phones, extra monitors, high-speed Internet, desks and comfy chairs, a sustainable working environment, and utility bills are all examples of potential costs.

You also need to factor in the loss of perks and the soft expenses that come with them, such as company-bought lunches, snacks, and coffee. Over time, it all adds up. 

These and other expenses are exactly what remote work stipends and allowances are designed to cover.

What Are Remote Work Stipends For? 

Remote work allowances can be used for a multitude of reasons. What is and isn’t allowed is a matter of individual company policy. 

Typically, remote work stipends are used to fund new office equipment, such as desks, ergonomically designed chairs, and extra monitors. They can also cover costs like food, coffee, or anything else an employee needs to stay comfortable and productive while working remotely, such as a faster Internet connection or a coworking space membership. 

A remote work stipend can be paid monthly alongside salary, quarterly, given as a one-time payment, or as a reimbursement for costs incurred by employees and then claimed for. 

Do Employers Need to Offer Remote Work Allowances? 

Strictly speaking, no. A remote work allowance is not like compulsory ‘13th month pay‘: You don’t need to offer a remote work allowance. But you’d be foolish not to, especially now that the attitude to remote work has changed so dramatically.  According to OwlLabs, however, only 20-25% of companies pay or share the cost of remote working expenses like furniture, equipment, and utilities. 

Rather than pocketing the money saved when employees go remote, ethical companies understand that their best assets are their people—and it’s in their interests to invest in and look after them. 

Similarly, compensation for legitimate work-related expenses is not something that employees should have to surrender for the “privilege” of working from home; they’re entitled to it. Remote working benefits companies just as much as it benefits employees and it shouldn’t be viewed as an employee perk. 

While workers shouldn’t be given a remote work stipend for everything—i.e., allowances for non-essential work equipment or lunch every day—certain operational costs absolutely should be covered. 

It is worth pointing out that, while remote work allowances are not compulsory, in some countries, such as Spain, it is compulsory to reimburse remote employees for their work-related expenses (whether through a remote work allowance or another method). 

Examples of Remote Work Allowances Offered by Real Companies

Since the pandemic saw millions of workers suddenly thrust into home-based remote working, remote work allowances have become more common. 

Twitter, which now allows employees to work from home permanently if they opt to, provides a $1,000 remote work allowance. As does Facebook (to full-time employees; not contractors), and Google

In fact, stipends, which have been described as “The tech industry’s new perk” are offered by most big tech firms. Some even provide stipends for specific costs, such as Basecamp which offers the following remote work allowances for their team members:

  1. A $100/month coworking space stipend
  2. A $100/month fitness allowance
  3. A $100/month massage allowance
  4. A $1,000/year continuing education allowance
  5. A $1,000/year matching charitable gifts stipend

Remote Work Allowances vs Tax Relief & Deductions: Are They the Same?

So far, we’ve looked at remote work allowances and remote work stipends as financial payments that are by companies directly to workers.

However, the terms remote work allowance and stipend are also commonly used to refer to the tax deductions and refunds that remote workers are sometimes entitled to claim, depending on where they live.

What Is Remote Work Tax Relief?

Many people don’t realize they can claim tax relief for working from home and miss out on valid tax deductions.

Essentially, remote work tax relief means that you’ll either pay less tax to account for any money you’ve spent on specific things (i.e., utilities and equipment), or get a refund for the amount of tax you’ve paid on these specific things.

Where Is It Available?

The situation is different depending on where you’re based.

For example, remote workers can claim £6 per week in tax relief for household costs in the United Kingdom. This is designed to cover things like increased utility bills, business call costs, and Internet bills. Remote workers can also claim tax relief on equipment that they’ve bought.

Meanwhile, in Belgium, remote workers can receive a tax-free remote work allowance directly from employers. At the time of writing, this is just under €130.

The rules vary a lot between different countries. Generally speaking, remote workers can claim tax relief or deductions for things like utilities, Internet bills, equipment costs, furniture, and rent.

It’s important to research the situation in your country to ensure you sit on the right side of the law. In New Zealand, for example, only self-employed people can claim remote work allowances through tax deductions. This remains the case even during the COVID-19 pandemic. Similar rules apply in the United States.

How Is It Calculated?

Again, this depends on where you’re claiming from and what’s being claimed for. Your status may also impact your claim, such as whether you’re self-employed or an employee working remotely.

As we’ve seen, remote employees in the UK can claim £6 per week for remote work without the need for any evidence to be kept. In contrast, Australians can make use of three calculation methods to work out tax relief entitlements and must keep records.

Who Can Claim It?

Wherever a tax-related remote work allowance is available to employees, the main requirement is that their home needs to be their main place of work. What “main place of work” means, again, varies. In some countries, this is 50%+ of work time spent in the home, whereas in Belgium you only need to work from home for five days each month.

In the UK and Australia, for example, you can only claim tax relief as a non-self-employed employee if you’ve been forced to work from home due to the COVID-19 pandemic. In both countries, temporary working from home due to the pandemic qualifies employees for tax relief.

Other restrictions or rules may apply. Again, it’s important to research the specific rules for your tax domicile.

How Do I Apply for Remote Working Tax Relief?

Remote workers generally apply for remote work tax relief as individuals when they file their annual taxes. The exact forms that need to be filled out and the information that needs to be provided will depend heavily on your tax authority.

Generally, companies won’t get involved here unless the companies themselves are paying out remote work allowances as a substitute for tax relief.

How Can a Global PEO Help You Manage Remote Work Stipends?

For many companies, the transition to remote work has been and continues to be a major pain point. Thus, seeking the help of a global professional employer organization could ease the burden.

Horizons’ in-house consultants and global PEO operations can help you get a grip of the administrative side of managing international organizations, including providing a remote work stipend to your employees that complies with local tax laws where this is required.

Frequently asked questions

Historically, this would be taxable in most jurisdictions as another form of employee income. However, as a result of the Covid-19 pandemic, many tax authorities temporarily made the remote work allowance tax-free up to a certain limit (e.g., up to $20 per week in New Zealand and up to £6 per week in the UK). 

Note, that this is distinct from any tax relief otherwise available for employees who have to pay for their own working from home expenses (see discussion above). 

Some choose to do so, but it is usually not a requirement. Where a remote work employee does not receive payment, they may be able to deduct a work-related component of internet usage from their income taxes (check the tax rules in your jurisdiction to be sure). 

Although stipends aren’t classified as wages, they do count as additional income and are thus taxable.

The taxability can depend on the method of payment by the company. Generally, stipends are taxable. However, if the company reimburses an employee for specific out-of-pocket expenses, such as internet costs, this reimbursement is typically not taxable. So, while a stipend for internet would be taxable, a direct reimbursement for internet expenses might not be.

Generally, employees primarily working from home qualify for remote work tax relief, but the criteria for such benefits differ by country. The stringency of these requirements can vary significantly depending on the location.

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