Not having a clear policy for managing employee expenses for your business could spell trouble for your employees, your management team and your company’s bottom line. Employees may overestimate what they’re spending and demand reimbursement. You could be paying for items that in no way benefit your business. Employees who don’t get paid what they feel they deserve can get angry with your company and talk about it negatively to peers.
Having a defined strategy and documentation to support it protects your business. Just consider the impact a simple travel policy has on employees. A 2016 study by the Global Business Travel Association found for 79 percent of business travelers, the company policy had the most significant impact on their travel decisions, more so than convenience or cost. If you build it, your employees will have to follow it. Use these tips to optimize employee expenses while keeping employees and clients satisfied.
Get an Accountable Expense Reimbursement Plan
An Accountable Expense Reimbursement Plan is a business plan that complies with standards set forth by the Internal Revenue Service, which allows your business to reimburse employee expenses on a tax-deductible basis. Expenses that fit within the plan must have a business connection and may include travel expenses, including meals and entertainment, as well as supplies purchased for business. Employees must report their expenses to you within a set amount of time, and any excess reimbursements that are greater than the allowable amount must be returned. You can find more information and how to report on these plans here.
As a business, you aren’t required to turn in every employee receipt to the IRS, but you must retain documentation for at least three years in case there’s an inquiry. The IRS will want proof that you have a plan in place for employees, which brings us to the next step.
Develop a Transparent Outline to Manage Employee Expenses
Your employee reimbursement plan should be transparent and accessible to all employees. An ideal place to store this for employees is in an employee handbook or policy and procedures manual, and make sure it’s up-to-date in each edition. You should also store the most current policy online where it’s easily accessible. It’s wise to consult with your compliance department when creating the policy to make sure the policy is legal and fair to employees.
A thorough policy for employee expenses should include a purpose, scope, payment type, details of exactly what qualifies for reimbursement, details of what will not be reimbursed, explicit direction to contact the employee’s manager or the human resources department before spending if there are any unanswered questions and how employees should file for reimbursement. The policy should also state what items need to be pre-approved before they’re purchased, such as significantly costly items like plane tickets. You can delve deeper into costs for each item, such as the maximum amount someone can spend on meals in a single day while on a business trip.
Don’t be afraid to dive into details. You might have different policies for different positions in your company, since employees across departments may be interacting with varying levels of clientele. It’s better to provide more information than cause confusion or a case where an employee feels like they have not been fairly reimbursed. Recruiting software Workable has a sample policy you can download and edit for your own business here.
Create a User-Friendly Expense Report to Help Manage Employee Expenses
The best expense reports are easy to understand for employees who use them and are simple for your accounting department to process. Accounting software Patriot Software has a basic expense report template and recommends including tracking for purchase date, item bought, purchase amount, advances given and reimbursement total. Smartsheet has created expense report templates for multiple categories. You should model your expense reports after your policy and keep them as simple as possible.
Store the expense report on a company hard drive or cloud location for easy download whenever an employee needs it. You can also add in some reminder language on the report about when it should be turned in, such as, “Please submit this report to accounting within 30 days of purchase.”
Manage Employee Expenses with Company Cards
If you have one, a few or many employees who are consistently spending money on business affairs for your company, supplying them with company credit cards may save your business hassle in expense reporting and give you perks in travel or cash rewards. Not only do company credit card purchases ensure accuracy and provide easy record-keeping, certain credit card companies may offer businesses rewards based on usage and purchase amounts. If your business is constantly flying people around to meet with clients, travel rewards could amount to great savings for your company.
Also, employees may appreciate being able to use a card rather than have to dip into their own checking or savings accounts for up-front business costs. Keep in mind, you’ll want to limit employees who get their own company credit cards to those you trust. Anything the employee spends on the company credit card will be paid by your business, and both the business’s and the employee’s personal credit histories will be evaluated before a company credit card is granted.
Again, if you decide to offer certain employees access to company cards, there should be a written policy in place, that is approved by your compliance department, to protect the usage of the cards. The policy should cover what happens if the cardholder uses the card to purchase personal items. Even if this happens accidentally, the policy should include how to rectify situations such as these.
Prepare Wisely to Protect Your Business
Your business capital is perhaps your most significant asset to staying afloat as a startup or growing business. In order to safeguard it but still enable employees to successfully make the purchases they need for your business, create clear and thorough policies and guidelines. Whenever employees are spending business money, whether for future reimbursement or on a company credit card, work with your legal team to create policies that keep your business protected. Then, consult with accounting to create expense reports that are easy to use and that make your employees’ jobs easier, too.