Affordable Ways to Maintain an Expense Reimbursement Policy
Updated: February 13th, 2024
Many companies rely on their employees to handle business expenses, such as purchases, travel expenses, and spending money related to their duties. They use their money, such as cash, credit, or debit cards, instead of company-issued cards. When companies follow this practice for business-related operations, they must devise and follow an employee expense reimbursement plan to ensure that their workers receive compensation for the money spent.
Maintaining an employee reimbursement policy can become complex and expensive, especially for small to medium-sized companies. Nevertheless, you can take decisive steps to reduce your costs, manage them better, and reduce confusion surrounding what employees should do when reporting their costs. In this blog post, we will help you understand all that.
The Importance of Maintaining an Employee Reimbursement Policy
Employers are not obligated to repay workers for business expenditures unless doing so would bring their pay down below the minimum wage, as stated in the Fair Labor Standards Act (FLSA). Nonetheless, the majority of workers will anticipate receiving payment for whatever personal funds they use for company expenses.
Effective expense management is crucial for your company's financial health and efficiency. Your employee reimbursement policy involves overseeing and controlling various costs involved with employee expenses. This process comes with several challenges. You may find your company relying on technology, policy enforcement, employee monitoring, and more to meet them. How do you keep these costs in check?
Without establishing and maintaining a sound employee expense reimbursement policy, tracking and reimbursing employee expenses will be haphazard and potentially expensive. Payroll services can support your company by providing a central location for workers to efficiently and securely offer their expense information while cutting down on fraud and errors.
Selecting a payroll service that will allow you to reimburse employees through their paychecks is one way to keep track of expenses. Having a formal reimbursement policy also sets expectations for what types of costs employees can expect payment for and when they will receive those funds.
Tracking & Reimbursing Expenses
Defining what types of expenses qualify for reimbursement is part of a sound reimbursement policy. Clear reimbursement guidelines and quick payment methods will maintain high productivity and morale. The Internal Revenue Service (IRS) indicates the following as typical reimbursable expenses:
• Business-related travel costs, including meals and accommodation
• Approved continuing education and training
• Office supplies and materials
• Business tools, hardware, and software
• Use a private vehicle for business purposes
• Some state laws may require telecommuting expenses, like phone and internet
Implement a substantial expense and reimbursement policy by specifying what is and is not allowed. Ensure all employees understand these guidelines so everyone is on the same page with reimbursements. You should have a centralized system where all employees can log in, report, and check their expense records for easier tracking and fewer paper-trail-related issues.
Set clear expectations on deadlines for receipts and reimbursement requests. Periodically audit your system to monitor the accuracy of reports and prevent unethical behavior. Similarly, monitor spending trends for unusual reimbursement claims or excessive spending.
Regardless of how you reimburse employees, having a transparent and fair reimbursement policy and an easily workable framework is crucial for accurate expense tracking and smooth payments.
Cost-Effective Strategies for Managing Employee Expenses
Reimbursement fraud is one of the most common ways that expense reimbursement can get out of hand. Typical scenarios include taking a taxi or a rideshare on behalf of the company to a meeting or an event that one could have easily walked to or renting a luxury vehicle when a compact or mid-size one would have accomplished the same goals. Enforce your reimbursement policy with these tips to cut down on and eliminate fraud:
• Require receipts to have the vendor's name, date and time of purchase, and item list
• Scrutinize receipts for hidden personal purchases and forgery
• Create consequences for committing fraud and overspending
• Use travel management tools that reinforce your company's spending policy
• Grant employees access to virtual corporate cards so you can track spending in real-time
Compliance & Policy Considerations
Ensuring employees adhere to expense policies can be challenging, as some workers may inadvertently or intentionally violate them. This can lead to inefficiency or financial risks, necessitating monitoring. However, many employees feel stress and anxiety when they know they are being monitored. A compliance-friendly employee monitoring policy that fosters a friendly work environment and respects the rights of employees is essential. Expense monitoring should be part of your overall employee monitoring policy. Transparency and avoiding micromanaging of expense reports can set the tone for trust. Using tools such as paperless payroll can help boost compliance and employee engagement while meeting regulatory challenges.
To increase compliance, regularly review your expense reimbursement policy and its categories. Many businesses have seen a marked increase in "other" or miscellaneous" categories over the past few years. If expenses are high in these categories, consider revising them to properly categorize rideshares, meal deliveries, and similar expenses.
Ways to Maintain Policy Adherence Without Excessive Costs
Overseeing expenses can quickly become complex and lead to overspending. Your business must rely on technology, employee training, and monitoring to tackle such challenges. Businesses with global operations have additional, unique challenges that include cultural differences and dealing with multiple currency units. Software incorporating features like automated report generation for expenses can help with expense tracking and policy compliance. You can keep costs in check by following these management practices:
Automated data entry
Use software that automates data entry to capture and record expenses automatically. This practice can reduce the risk of frequent errors with manual entry and save time.
Digital receipt management
Encourage employees to use mobile apps to digitize and store receipts. This practice streamlines the organization and eliminates the risk of lost or damaged receipts.
Real-time currency conversion
If your business operates internationally, ensure your expense software includes real-time currency conversion. This feature provides accurate conversions that will help minimize discrepancies and simplify cost management across currencies.
Use the tools available in expense management software to simplify the reconciliation process and help align your records with bank and credit card statements.
Mobile approval workflow
Incorporate mobile approvals within your expense system to review and authorize expenses as they occur. This practice improves overall efficiency and reduces delays in reimbursing employees.
Choose software that integrates with your operations to minimize errors and improve data accuracy by ensuring a smooth data flow across various platforms.
Stay abreast of regulatory compliance
Monitoring the tax laws and regulatory changes related to business expenses is essential. The management practices should be reviewed and adjusted regularly to ensure continuous regulatory compliance and minimize the risk of penalties.
Implement cultural sensitivity and training
For international companies, training can help address variations in expense practices across cultures. Adapt flexible expense policies that comply with location regulations.
Communicate your expense policies. Consistent policy enforcement is crucial to ensuring your workers adhere to guidelines. Implement regular training to reduce the chances of policy violations and non-compliance. Ensure you address employee concerns and show how your expense reporting system will benefit them by fostering a responsible management culture.
The importance of clear communication in reimbursement processes
When expectations are clear, employees are less likely to claim reimbursement for expenses outside your policy. Effective communication establishes a transparent and accountable expense approval process. It can also lead to increased productivity, efficiency, and trust. Stating the timeline for reimbursement and the method by which employees will receive compensation for their efforts and sticking to it as much as possible can reduce employee frustration and avoid potential cash flow problems.
Reimbursement policies specify eligible expenses for compensation and ensure compliance and a streamlined payment process. The Tax Cuts and Jobs Act of 2018 removed certain unreimbursed tax deductions for work-related expenses like home offices, so you must reimburse your employees for business-related expenses.
Using the latest software to automate payroll, expense tracking, and more can help ensure that expenses are tax deductible while also helping to make expense reporting more accurate, minimizing inadvertent and intentional fraud. Not all fraudulent expenses are easy to spot. However, regular monitoring can point out trends.
Establishing a formal, written policy helps everyone in your company know which expenses qualify for reimbursement. Review your policy periodically to ensure that it continues to meet regulatory changes and revise it according to external drivers. A clear policy, combined with automation, will streamline the expense approval process and reduce overall costs. It reduces the time from filing to reimbursement and increases satisfaction for everyone involved in the process, including management, the payroll department, and employees receiving reimbursement.