I'm working at a new employer. We have some employees that we provide cell phones for, but some employees want to use their own phones and the company has been paying toward the cost of the phone ($200 allowance) and capitalizing that allowance. This seems odd to me - does anyone else do this?
If you allow BYOD cell phones, do you pay the employee for part of the cost?
Answers
NO,
Capitalizing the allowance seems quite wrong.
The asset belongs to the individual, not the company, so should not be capitalized.
It should be expensed, and I typically toss it into "employee fringe benefits".
kp
I completely agree with Keith on his approach. It not only makes tremendous sense, but it is simpler.
Agree, I would draw an analogy to capitalizing the investment into relocation or recruiting fees upon hiring an employee. Only reason to capitalize is to distort earnings. This does not leave you with a fair statement of the financials
Kudos to Vernon on cutting to the chase there. Distortion would be the effect, and I'm sure you don't want that problem.
With many flat rate plans available, does it make sense for employers to continue paying towards employees phones? Is it just a nice gesture?
We reimburse employees monthly as part of an approved expense report. The company does not own the phone, or the service agreement, so nothing to consider capitalizing. They remain responsible for the cost of the phone while employed, and since its their contract with the provider, after the last date of separation. We reimburse the monthly cost in full.
I'll join Keith and Regis, except I've made cell phone COA expense accounts, where that expense becomes material.
I'm not sure there is a devious plot to misstate the financials, just ignorance of GAAP. I mean over a great many years or many employees you'll have a significant misstatement (remember you'll also have to depreciate the asset as well).
As to Judah's statement, yes and no. The only flat rates I've seen are cell to cell, either the same cell company or pre-specified numbers (and a limited number of these). What if there is international calling? That does get expensive, so there is always a reason, like any other expense rules and monitoring are necessary.
Thanks to everyone replying - I met with our Sr VP yesterday and discussed my concerns. Our policy just grew out of the Company originally buying the phones for the employees until some employees wanted to keep their family plans. Then we started reimbursing but they never changed from capitalizing to expensing. The amount is completely immaterial to the financials, but we will now be considering this a fringe benefit expense.
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Are you intending to make the reimbursement taxable to the employee? We view it at our company at reimbursement of work-related expense, rather than a taxable fringe benefit.
No one seems to be addressing reasons for companies "owning" the phone. Phones today can be extensions of many business processes, especially sales. If you take charge of the phone and billing, it allows the business to own everything that goes on with the phone. Situations could occur when that might be valuable. If the employee leaves at some point in the future, the business can decide whether to keep the number for themselves or let the employee take it with him.
A few years ago I worked for a company that provided a phone and explicitly stated they owned it and would keep it when I left. It meant I kept a phone for personal use and business use. It was a bit of a hassle, but I understand the reason.
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Jack - I can see a business saying that if they provide you with a phone, they would like it back. As far as number, in reality that's totally unnecessary because if an employee was to leave (for whatever reason) it would be extremely easy for them to be tracked down (think LinkedIn) from prior business associates.
As far as two phones, that may be an employee's desire, but with Google Voice (and others) you can now make a cell phone have multiple numbers..
We, as many of our clients, reimburse monthly cell phone expenses for employees who need to use their cell phones for business. i.e. salesperson, executive, etc. but not administrative or clerical.
There are also some companies that use a specific cell provider and provide phones and pay consolidated invoices for monthly calls to that provider. If an employee wants to use a different provider, they are not provided a phone nor reimbursed for monthly expenses.
Some clients provide Blackberries to certain employees because they require the security of the Blackberry encryption. In those cases the phone and monthly expenses are paid directly by the employer.
We do both as well - provide phones and some can use their own phones. If they use their own phones, the company pays for their service (about $75/month) that would be equivalent to what they would pay with a company-owned phone. Either way, the cost is expensed. It does not make sense to capitalize this at all.
That makes absolutely no sense, and is clearly not correct. The employee, not the company own the phone. The reimbursement should definitely be a company expense. Since the company is providing a flat allowance, not reimbursing for business usage, may need to report this as wages on the employees W-2.
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I've been at companies that treat a monthly phone stipend as an expense, and others who include it as wages in the paycheck. I have never been able to find a definitive statement as to whether there was any legal requirement to have these payments taxed. Does anyone have an answer from an authoritative source? Thanks.
Here's the definitive answer your seeking...
http://www.irs.gov/uac/IRS-Issues-Guidance-on-
That makes absolutely no sense, and is clearly not correct. The employee, not the company own the phone. The reimbursement should definitely be a company expense. Since the company is providing a flat allowance, not reimbursing for business usage, may need to report this as wages on the employees W-2.
If you put the cell phone cost into fringe benefits, then it should go on the employee's w-2. A cell phone is either necessary to the employee's position or it is a convenience. Where I have worked, cellphones were given to outside employees and managed by the IT department.
Another solution to cell phones is to give the employee an allowance for usage, say $50/$100 a month, and the monthly costs, new phones, etc. were all employees responsibility.
After reading Wayne's referenced IRS materials we will not be putting this on the employee's W2, but will consider it reimbursement of work related costs. This makes more sense to me as we are paying for these phones in order to have 24/7 access to the people that carry them, and not for any benefit of the employee.
For employees that need a phone for their job we increase employees salaries by $600 ($50 per month.)
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That doesn't seem fair - not only are they getting taxed on the $600, but its possible that the extra income can put them into a different tax bracket.
Why not write an expense check?
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