Expense reimbursement is a vital aspect of any business that deals with employee travel or expenses related to their work.

It helps companies manage their finances effectively and ensures that employees are compensated for their expenses, promoting a healthy and positive working environment.

So, whether you are a business owner, finance manager, or an employee who frequently incurs expenses while on the job, this article will provide valuable information on the benefits of expense reimbursements and how they can help improve your work experience.

Expense reimbursement is when employees receive payback for spending money on business-related operations.

An employee reimbursement usually isn’t included in wages or taxable income reports since they must be included in an accounting plan with spending limits for a certain period.

Reimbursements are straightforward, and companies expect employees to use expense logs to see the costs incurred. After that, Human Resources will verify and confirm all the information. Then, the employer pays.

Everything that is concealed in the company’s expense reimbursement policy is considered.

But it doesn’t only rely on that. You also have to consider checking your local tax laws. For example, in the USA and according to the IRS publication 535, “A business expense must be both ordinary and necessary. An ordinary expense is common and accepted in your industry. A necessary expense is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”

Based on this information provided by the regulatory organization, here are certain business expenses you should consider:

Travel Expenses

Employees are allowed to get tax deductions from these individual expenses. They are commonly considered to reduce travel costs. Some examples are:

• Plane tickets

• Extra baggage

• Internet and phone charges

• Taxis

• Accommodation

• Car washes

Employee Meal Expenses

Companies usually have spare money for those workers who need a lunch break. Employees can get reimbursed for expenses if they get a receipt and take it to the business’s accountant.

Some expenses include:

• Meals

• Entertainment

• Tips

Client Entertainment

Some organizations require you to spend time with suppliers or clients in a sort of “lobby.”

Usually, workers who spend time with them pay for their entertainment or meals. Since this is part of their daily routine, it’s considered a business expense. Hence, any client or supplier meal that’s paid will get reimbursed.

Working & Incidental Expenses

Daily operations always have a risk. Whether it is twisting an ankle, crashing your car, etc., as long as they are work-related situations, they will be refunded.

Some of these expenses include:

• Health insurance

• Car insurance

• Any other form of protection for employees

• Subscriptions

• Gym memberships

Sometimes employees would also use their own transportation. In these cases, the company would also return the money spent as long as they are valid.

Supplies Expenses

The most common business-related expenses are those for tools and equipment. Even though not all of this spending will be refunded, employees can still get reimbursements for particular items.

For example, they are valid if they purchase a laptop used strictly for work.

Some other products include:

• Tools

• Uniforms

• Cleaning

• Education

• Business cards

• Advertising in general

Long story short, yes, they are the same.

A business expense is linked to a company and how it makes money to survive. And that includes all that employees do and their activities.

This is different from personal expenses, which only benefit you.

The line could be thin and difficult to see, but once you understand that, you’ll get tax benefits from those reimbursements.

Reimbursable expenses have clear benefits and drawbacks when applied to a business. Let’s break them down.

Depending on your organization, it could be more beneficial or harmful. It’s up to your business model and HR to decide on this methodology’s convenience.

Reporting expenses in your business helps you stay organized and track actual expenses to benefit your organization.

You must follow the accountable reimbursement plan and IRS regulations when creating the documentation.

You also must include the following details:

• Employee’s information

• Date

• Employee reimbursements by categories

• Date of expenses incurred

The expense report must be exhaustive and include all information about such expenses. It should include the receipts to confirm their validity.

When preparing the company’s grounds to reimburse employees, there are a few things you have to do to start reimbursing employees.

Define The Reimbursement Policy

Set up a strict reimbursement policy with Human Resources that all employees follow. This will help your finance team and workers identify the only expenses that are valid for reimbursement.

This could include:

• Information about using the business’s money for personal use.
• Set up the per diem rate – the universal business expense allowance for each employee.
• Establishing how many categories your expense policy will have.

Implement it and ensure all your workers who benefit from this policy are aware of it.

Create an Environment for Easy Reimbursement Requests

Expense reports must be centralized, so your finance department can find them without delays. This will improve response times and reduce paperwork.

Ensure you have a linear system so employees understand and explain step-by-step what they must do to request reimbursements.

Here are some of the things you could do:

• Create a FAQ with questions like “Are reimbursements taxable?”

• Prepare a single email where employees send their requests.

• Use a free or paid software where finance can access reimbursement requests with real-time visibility.

Track Employee Business Expenses

Follow an accountable plan you made for reimbursements. Centralize requests with expense reporting software to quickly track your employees' spending.

Use this with finance teams to double-check the validity of the expense report with receipts.

Continue with the Approval Process

Manually or digitally check expenses during a reasonable period. To approve reimbursements and process payments, you must check:

• Proof of expenses

• Authenticity based on accountable plans

You could use a specialized software with employees so they add their expenses. Many employers use them to:

• Receive information about employee travel expenses

• Check if expenses are being used for the business purpose

• Increase the speed of expenses approvals

• Verify in real-time if employees are using their own money to pay for personal things

Measure, Report, and Submit Employer Reimburses

Use the information your employees give you to measure and determine how reimbursements are going compared to your business goals.

Develop strategies to use these supplemental wages and boost your workers' performance.

At last, reimburse all the expenses that have a clear business purpose.

Considering the information above, what is the best productivity software you could use to manage employees' travel and other expenses?

Microsoft Office 2021 Pro Plus Key Phone Retail Global is a multidisciplinary solution to create, review, share, and analyze expense reports.

This program suite allows you to install multiple software like Excel or Word and craft intuitive forms with charts or graphics. You can use it in your workplace with all employees.

To use this software, you must purchase a lifetime license. RoyalCDKeys brings you a cheap and original version for less than $20.

Expense Reimbursement Templates

We’ve gathered the best templates for your business to make your expense reports more accessible.

Template #1

Simple expense report template. To check details and consider the proper spending - Download Link

Template #2

Expense reimbursement form template. Perfect for mileage reimbursement - Download Link

Template #3

Travel reimbursement form template. To keep meal costs in check from overpayment - Download Link

After knowing how to manage employee expenses, you can simplify your processes.

The important part is that you keep reimbursements organized and on time.

Here’s what you can do:

Ensure Reimbursements Are Done On Time

If your employees spend over 15 days working outside and spending their money, you could issue a corporate credit card with spending limits.

This will help them spend your money and reduce the number of reimbursements. Just make sure you set up rules for their use.

Instead of a refund, you could make direct deposits and set up a monthly amount.

Identify Common Expenses

There are tens of expenses that could be refunded. However, not all of them have a clear business purpose.

To do that, you must set boundaries about what can qualify for reimbursement. The only way to decide that is by looking at your business operations.

• Do your sales involve workers traveling?

• Does revenue include lobbying with suppliers?

• Can your employees get hurt while working?

Audit Expense Reimbursement Requests

Constant audits allow you to discover loopholes and claims that don’t follow policies.

These processes also help you to identify what departments could get a cut in expenses and comply with IRS requirements.

Understanding and effectively implementing expense reimbursements is crucial to modern business management.

With an established, well-structured, and transparent reimbursement policy, organizations can foster a positive work environment and motivate employees to perform their tasks with utmost dedication and commitment.

A fair and efficient expense reimbursement system benefits businesses and employees by eliminating financial burdens, ensuring compliance with tax regulations, and promoting cost management.

So, investing time and effort into designing a seamless and user-friendly process will contribute to the business’ productivity, employee satisfaction, and overall success.