Thursday, March 21, 2019

Stipends Paid for Business Use of Personal Cell Phones

We recently encountered a situation where a Government contracting officer questioned stipends paid to two employees to cover the business use of their personal cell phones. We do not know whether the contracting officer is acting on recent guidance or if he/she is acting on his/her own accord. We did note that the challenge was made without benefit to a regulatory basis such as the FAR Part 31 cost principles.

Contrary to this particular contracting officer's challenge, the practice of paying a stipend to employees for business use of personal cell phones is very common among small businesses and small business Government contractors. Paying stipends for such use benefits the Government because the cost of a stipend is usually significant less than the cost for the contractor to purchase a separate cell phone plan and assign it to the employee. It also benefits the employee who otherwise, would need to carry around multiple cell phones. Stipends do not represent windfalls to employees. Using personal phones for business use often requires employees to increase their usage limits at extra cost. A stipend then is simply a reimbursement for business expenses borne by the employee(s). Stipends for business use of personal cell phones is very similar to someone using their POV (privately owned vehicle) for business use and obtaining reimbursement from their employer. No one has ever questioned the propriety of that.

The questions that contractors should ask themselves before paying stipends are these:
  1. Is a cell phone necessary for the conduct of contractor business?
  2. If yes, is the employee willing to use his/her personal cell phone for business purposes in exchange for a stipend?
  3. If yes, is the stipend reasonable, that is, is it less than the cost of a company sponsored plan?
The costs, whether in the form of a stipend or a new business-only service must be allocated correctly. A determination needs to be made whether to charge the costs direct to a contract or to an indirect cost pool for allocation across multiple cost objectives.

Unless the employee remains tethered to a desk full time, the practicalities of a cell phone should be rather obvious. Cell phones make employees more efficient in a lot of ways. They can conduct business while driving between clients. They can conduct business during down time. They can return phone calls more expeditiously and not have to wait until they return to their desks before checking messages.

Are we off base here? Let us know.

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