In every business, small or large, there are expenses to be incurred. Some of these expenses are incurred by employees for business purposes and are expected to be reimbursed. In this article, we lay out what expenses are eligible for reimbursement and what the best practices for successful expense management are.
Morally and legally speaking, employers are required to fully reimburse their employees in a timely manner when they incur expenses on behalf of the company. This does not, however, that employees get to spend impulsively and expect to be reimbursed for every payment they make.
Companies must set up rules and guidelines that clearly define what counts as a reimbursable expense. These rules are generally communicated in the company’s expense policy.
For an expense to be reimbursable, three general conditions must exist:
- The expense must have a clear business character, that is to say, the expense is needed for employees to appropriately perform their job.
- Payments that are expected to be reimbursed must be reported to accounting or the concerned parties promptly according to the rules stated within the expense policy.
- Clear evidence of the purchase must be displayed. Evidence is generally in the form of an invoice, receipt or any proof of purchase. The minimum information that should be included is the total amount (with tax), the time and place of purchase and a description of the product or service provided.
Read more | How to deal with an expense with no proof?
If an expense has these three conditions, it is very likely eligible for tax deduction purposes.
- For UK readers, the guidelines are laid out in detail in this guidebook provided by HMRC.
- U.S. businesses can consult this online guide by the IRS.
Read more | HMRC: Business Travel & U.K Tax
What can be reimbursed?
Now that we explained what qualifies as a reimbursable expense, we will dive into the various categories that can be considered for reimbursement.
We have explained in a previous article what T&E expenses are and how they make the biggest source of employee reimbursement. Most of the purchases made during business travel account for valid reimbursable expenses. From the taxi trip to the airport to the flight itself to hotel stays and meals, all these expenses should be covered by employers.
There are less common but also important expenses that are worth mentioning as well. For instance, visa fees or vaccines to certain countries are significant and necessary costs that must be covered as well.
Check out how to properly define your T&E policy in this previous blog article.
Meal and subsistence rates:
Oftentimes, employees, especially salespeople treat clients or contacts to lunch or dinner to improve the business relationship or to close deals. These costs account for reimbursable costs because they are in the interest of the company.
HMRC has set a standardized list of meal allowance rates to avoid abuse.
During a business trip, every form of transportation should be covered by the company if it relates to work. However, as explained in our previous article, there is a difference between what is considered business travel and personal travel.
However, some companies choose to incentivize their employees by subsidizing the cost of their travel cards or sometimes even the full amount. They can also, as a part of their CSR policy, encourage carpooling and cycling by sponsoring the purchase of a bike or reimbursing mileage allowances to work.
Office supplies and equipment
It is necessary to provide an adequate work environment if you expect your employees to be productive. Companies should cover equipment that facilitates daily tasks such as appropriate internet connection, keyboard, mouse, headsets, comfortable chair, or even cellular plans for the sales team whose work involve several phone calls a day.
7 Best Practices for Expense Management
In addition to reimbursable expenses, other practices are necessary for successful expense management:
- A solid expense policy that reflects the needs of all parties: The Company, managers, and employees.
- Transparency, fairness, and comprehensiveness with the policy.
- An easy way for employees to submit their expense reports: An expense reports management software that digitises the entire process.
- Gathering and retaining important expense information as required by law.
- Establishing accountability throughout the entire process.
- Timeliness with employee reimbursement.
- Regular audits of the process and paying attention to anomalies and fraud.
Read more | When Expense Reports Rhyme with Fraud
Employee reimbursement made simple with Expensya
All these rules and guidelines do not negate the fact that expense management is still a burden to all parties involved. Such a process must be automated to leave room for more productive work-related tasks.
Tools like Expensya automate the entire business expense process from payment to reimbursement for all companies regardless of their size with features tailored to your needs.
Take advantage of our self-managed expenses, intelligent validation and control, automated accounting, or even complete integration with your entire ecosystem (Payroll, Accounting, HR, Travel, etc.)
Try Expensya for free for 30 days and enjoy the most automated solution out there!