Illinois employers have a lot on their compliance plate in 2026. New employment laws covering paid leave expansions, wage transparency, and employee protections took effect this year — and regulators are paying close attention. Against that backdrop, one obligation that still catches small business owners off-guard is the state’s mandatory expense reimbursement requirement. If your team works remotely, travels for clients, or buys supplies to get the job done, you may owe them more than a thank-you — you may owe them reimbursement by law.
This post starts with the plain-English definition of reimburse, then walks through exactly what the Illinois Wage Payment and Collection Act (IWPCA) requires — and what a compliant written policy actually needs to say.
What Does Reimburse Mean?
To reimburse means to pay someone back for money they have already spent. In a business context, it means an employer repays an employee for out-of-pocket costs the employee incurred while doing their job.
The word comes from the Latin re- (again) and the Old French embourser (to put in a purse). Legally, reimbursement is distinct from compensation: it is not a wage or bonus — it is a return of money the employee already laid out on the company’s behalf. That distinction matters for tax treatment and, critically, for Illinois wage law compliance.
Why the Definition Matters Under Illinois Law
Most states leave expense reimbursement to employer discretion. Illinois does not. Under Section 9.5 of the Illinois Wage Payment and Collection Act (820 ILCS 115/9.5), employers are required to reimburse employees for all necessary expenditures or losses incurred within the scope of employment and directly related to services performed for the employer.
In plain terms: if an employee spends money to do their job and the expense primarily benefits the employer, the employer must pay it back. This is not optional.
Amended IDOL regulations — finalized in April 2023 and still fully in effect — sharpened how “necessary expenditures” and “primary benefit of the employer” are interpreted. If you have not reviewed your expense reimbursement policy since 2023, now is the time.
What Counts as a Reimbursable “Necessary Expenditure”?
The IWPCA defines necessary expenditures as costs that are (1) required of the employee in the discharge of their employment duties and (2) made for the primary benefit of the employer. The IDOL’s amended regulations identify five factors regulators use to determine whether an expense meets the primary-benefit test:
- Employee expectation: Did the employee reasonably expect to be reimbursed when they incurred the cost?
- Job necessity: Was the expense required or necessary to perform the employee’s job duties?
- Employer benefit: Is the employer receiving a value it would otherwise need to pay for?
- Duration of benefit: How long does the employer continue to receive the benefit of the expense?
- Job requirement: Is the expense a condition of the job itself?
Common reimbursable expenses for Illinois SMBs include: home-office internet and phone use for remote employees, mileage driven in a personal vehicle for business purposes, software subscriptions purchased to do the job, travel and lodging for client-related work, and office supplies bought when company purchasing is unavailable.
For mileage specifically, Illinois employers must reimburse at a rate that at minimum does not cause an employee’s effective hourly wage to dip below the state minimum wage. The standard reference point for 2026 is the IRS rate of $0.725 per mile, though employers may use alternative methods such as FAVR (Fixed and Variable Rate) or actual-cost reimbursement.
What a Compliant Written Expense Reimbursement Policy Must Include
The IDOL’s amended regulations do not just define what must be reimbursed — they impose specific administrative obligations. Here is what your written policy should address:
1. Clear Definition of Reimbursable Expenses
Your policy must identify which categories of expenses qualify for reimbursement. Vague language like “reasonable business expenses” is not enough. List specific categories — travel, mileage, home-office costs, software, meals — and note any exclusions.
2. Submission Deadlines
Employees must submit expense requests with supporting documentation within 30 calendar days of incurring the expense, unless your written policy establishes a different extension period. Your policy must state this deadline clearly. If an employee lacks a receipt, the regulations contemplate that a signed written statement detailing the expense may substitute.
3. Approval and Denial Procedures — Including a Response Obligation
This is where many small businesses are unknowingly non-compliant. Under the amended IDOL regulations, if an employer does not respond to an employee’s reimbursement request, that silence is treated as a denial — and the employee can immediately file a wage claim with the IDOL. Your policy must establish a clear timeline and process for approving or formally denying requests. Do not let reimbursement requests sit in an inbox.
4. Expense Caps (If Any) Must Be Explicit
You may set caps on certain expense categories — for example, a $50-per-day meal cap during travel. However, if your managers or payroll team have historically paid more than the written cap, the amended regulations treat that practice as the actual policy. You can be held liable for the higher amount even if your written document says otherwise. Caps must be written, communicated, and consistently enforced.
5. Treatment of Final Paycheck
Any approved but unpaid reimbursements for a departing employee must be included in that employee’s final compensation. This applies to both voluntary separations and terminations. Missing this step can convert a routine reimbursement dispute into a wage-claim complaint.
6. Three-Year Recordkeeping Requirement
The amended regulations require employers to retain: (a) the written reimbursement policy itself, (b) employee requests for reimbursement, (c) documentation of approvals or denials, and (d) records of actual payments made — all for a minimum of three years. Build this retention requirement into your document management or HR system.
Remote Employees: A Compliance Flashpoint
The rise of hybrid and fully remote work has made expense reimbursement one of the most common employment law questions Illinois SMBs face. When employees work from home, costs like high-speed internet service, a second monitor, or a dedicated phone line may qualify as necessary expenditures if those expenses are required to perform the job and primarily benefit the employer — not the employee personally.
The analysis is fact-specific. A remote employee who already had home internet before being hired is in a different position than one who upgraded their plan specifically because the job required faster speeds. Your policy should address home-office expenses directly, rather than leaving it to ad hoc manager decisions.
Penalties for Non-Compliance
Non-compliance with the IWPCA’s reimbursement provisions is not a technicality — it carries real financial exposure. Under 2021 amendments that remain in effect, employers who fail to reimburse required expenses can face a statutory penalty of 5% of the unpaid amount per month that the reimbursement remains outstanding, in addition to the underlying amount owed. Employees can file claims with the Illinois Department of Labor or bring a civil action — but not both.
For a startup or SMB watching burn rate, an unexpected wage claim — with mounting monthly penalties — can be a serious hit. A clear, compliant policy is far less expensive than defending an IDOL complaint after the fact.
Frequently Asked Questions
Is expense reimbursement required by Illinois law?
Yes. Under 820 ILCS 115/9.5, Illinois employers must reimburse employees for all necessary expenditures incurred within the scope of employment that primarily benefit the employer. This is a statutory obligation, not a matter of employer discretion.
What happens if an Illinois employer ignores a reimbursement request?
Under amended IDOL regulations, an employer’s failure to respond to a reimbursement request is treated as a formal denial. The employee may then file a wage claim with the Illinois Department of Labor. There is no specified grace period before silence becomes an actionable denial.
Can an Illinois employer cap the amount it will reimburse?
Yes, written caps are permitted. However, if the employer’s actual practice has been to pay more than the written cap — even informally — the employer may be held liable for the higher amount. Caps must be written, communicated, and consistently applied.
Do remote employees qualify for expense reimbursement in Illinois?
Potentially, yes. If a remote employee incurs costs — such as upgraded internet service or home-office equipment — that are required by the job and primarily benefit the employer, those expenses may qualify as necessary expenditures under the IWPCA. The analysis is fact-specific and depends on whether the expense was required for the job rather than a personal convenience.
How long must Illinois employers keep expense reimbursement records?
The IDOL’s amended regulations require a minimum three-year retention period for reimbursement policies, employee requests, approval or denial documentation, and records of actual payments made.
The Bottom Line for Illinois SMBs
The legal definition of reimburse is simple: pay someone back for money already spent. But for Illinois employers, the obligation behind that definition is anything but simple. The IWPCA imposes mandatory reimbursement duties, a five-factor primary-benefit test, strict response and recordkeeping obligations, and escalating penalties for non-compliance.
If your business does not have a written expense reimbursement policy — or if the one you have has not been reviewed since the IDOL’s 2023 regulatory amendments — it is worth getting it right. A policy review is a straightforward engagement. Getting it wrong is not.
Fitter Law helps Illinois startups and SMBs review and update employment policies on an ongoing basis, including expense reimbursement, offer letters, and contractor agreements. Learn about our employment law services or view our flat-fee packages.
This post is for general informational purposes only and does not constitute legal advice. For guidance specific to your business, consult a licensed Illinois attorney.