Split Liability For Smartphones Warrants A Closer Look

At Research In Motion’s (RIM) WES event last week (April 27-29, 2010), there was a customer panel session on individual liable versus corporate ownership of BlackBerry devices. The panelists included IT decision makers from the education sector, local government, and a large entertainment company. The panelist and audience comments validated the ongoing debate within many IT client firms about the values and challenges of managing an increasingly diverse population of mobile users in the enterprise. The debate around individual liable (IL) vs. corporate liable (CL) mobile device ownership and services payment is heating up.

Many employers want to allow employees to access email and personal information management (PIM) applications like calendars and contacts on corporate servers, but they don’t want to pay for the devices and wireless services of employees whose job functions don’t require them to use a mobile device. Many firms are struggling to find the right balance between: 1) giving easy access to corporate applications and information to enhance employee productivity; 2) controlling escalating wireless and related IT support costs; and 3) ensuring corporate compliance with government and industry rules. The panel session addressed the following broad topics about the challenges enterprises are facing in managing mobility:

Smartphones

In Q3 2009, Forrester surveyed US, Canadian, and UK information workers (iWorkers) at firms with 100 or more employees on their smartphone use. While most iWorkers are using a company issued and supported smartphone, nearly a quarter of them (23%) are on their own -- they bought a smartphone that their company hasn’t said it supports. All the WES panelists at last week’s session told us that while they’re seeing a proliferation of mobile devices in their firms, they remain entirely or mostly BlackBerry smartphone shops (no surprise, given it was BlackBerry manufacturer RIM’s event). One panelist (entertainment firm) said his company is working to ensure IT’s support model fits what makes the most sense to its very large (several thousand) mobile user base; it’s considering offloading some portion of escalating wireless costs to users, but is still studying how it might do this. Another panelist (education firm) said that due to government funding cuts, it cut back on the number of employees that qualify for corporate liable (CL) mobile devices and services -- for example, professors no longer qualify.

In response to an audience question about providing stipends to wireless users as an alternative to CL, the panelists concurred that this adds complexity to wireless cost management. However, one panelist (education firm) said his organization does provide stipends to some users. Typically stipends for wireless devices and services are provided in one of two ways: either as part of the employee’s pay and taxed as such, or based on bill audits of a sampling of mobile users. (One of the panelists noted that their periodic mobile voice audits show 15% to 20% of usage is for personal calls.)

Security and regulatory compliance

Anecdotally, the main reasons Forrester IT clients give for continuing to pay for most of their mobile users’ wireless devices and services are their desire to control their wireless environment to minimize legal and regulatory exposure concerning information security and privacy -- e.g., HIPAA. Our survey of IT decision makers in Q1 2009 showed that more than three quarters (78%) of firms surveyed with 1,000 or more employees paid for all the qualifying mobile users’ devices and monthly voice services, and a similar portion (77%) paid for all mobile data services. In order to ensure compliance, firms operating in regulated industries need to establish and enforce a formal mobility policy covering use of personal as well as employer-provided wireless devices. (See my September 9, 2009 report, “A Formal Policy Is Needed To Reduce Mobility Costs.”)

The WES panelists’ firms all have implemented formal mobility policies requiring both IL and CL wireless users to agree to IT wiping their devices -- at any time. They each consider this a reasonable cost for employees for being allowed to connect to the employer’s network. The local government panelist firm’s acceptable use policy for mobile instruments also includes employee owned USB keys and personal laptops that connect to its network.

Taxation

A surprise for many firms we’ve spoken to with US CL wireless users, the US tax code considers cell phones a taxable fringe benefit. The requirements, which date back to 1989, require that employees using a CL device must keep a record, and submit documentation to their employer about all personal calls. Employers in turn must assign a pro rata share of the monthly wireless service charges for each call made, and document the value of personal calls in the employee’s taxable wages. Last June, the IRS and Treasury asked Congress to repeal the tax altogether, but the draft legislation hasn’t moved beyond committee, so the rules remain in force. Similar value-added tax (VAT) rules remain in force in Europe as well.

Some options that would simplify reporting of personal use of CL wireless devices for taxation purposes include: 1) Employees equipped with a CL device could avoid tax liability if they can show proof that they use a personal cell phone for non-business calls during work hours; 2) in the US, the IRS has applied a 25% rule when auditing US firms for tax purposes where detailed documentation is unavailable; this assumes that employees use CL devices for personal use 25% of the time (the tax impact to a US employee with say a $1,500 per year wireless cost paid by the employer who is in the 28% tax category would amount to an additional tax cost of $105); 3) the employer could take a statistical sampling of all wireless usage costs to establish the average portion of personal calls. This would be applied equally across all mobile users.

Many firms today do issue VAT or US wage earning forms (see: http://www.irs.gov/govt/fslg/article/0,,id=167154,00.html) to employees that report either averaged or actual personal use based mobile device usage as taxable wages. Many employees, in particular those that do not travel outside their home country for business, or where low-cost unlimited call and data plans are available, have opted out of trying to recover their wireless costs from employers. This trend is captured in Forrester’s Q3 2009 survey that showed that nearly a third (31%) of iWorkers in the US, Canada, and the UK report that they pay their entire monthly bill for mobile voice and data services.

Recommendation: Consider split liability for mobility management

Split liability is likely to keep growing in popularity. Adoption of this approach, which could take the form of flat-rate or pro-rated compensation or stipends to wireless users, will be driven by the desire of most firms to find the right balance between minimizing overall mobility costs and also improve IT support to an increasingly mobile employee base.

As of April 2009, just 15% of North American and European firms surveyed by Forrester opted to limit their reimbursement for employee mobile devices, and 16% did so for mobile voice and mobile data services. Preliminary results from a recent survey (not yet published) of firms with 20 or more employees suggest that some momentumis growing to move towards split-liability programs for paying for wireless devices and mobile servicesas well, but most companies continue to pay for all eligible wireless user costs – devices, including smartphones and services. I expect this trend will continueto gain momentum during the next two years, to a point where, possibly by late 2012 a majority of enterprises will adopt split-liability wireless compensation programs that will mainly take one of two forms: 1) CL devices and CL service payment by the employer and an automatic payroll deduction of 20% or 25% of averaged CL mobile service plan costs; or 2) a combination of employee paid (IL) smartphone devices and employer payment of services with normalized chargebacks.  I also expect a dramatic shift by enterprise IT shops during the next two years to support at a minimum email and PIM synchronization support for certain types of personal smartphones.