Expense reimbursements are a fundamental component of running a business, whether employees are regularly incurring business expenses or not.
This makes implementing the proper expense policies important. Without the necessary controls and reporting guidelines, you might notice inconsistent reporting, unauthorized spending, and a lack of transparency in reimbursements.
In this article, we’ll highlight essential expense policy guidelines your business should have in place, including practical examples for your finance and HR teams to follow.
Core Elements of an Expense Policy
Expense policies are unique to your business and industry. For example, a software company most likely wouldn’t need to reimburse an employee for a tooling purchase, while a manufacturing business would.
When developing your expense policies, you need to keep the specifics of your business in mind.
Nevertheless, here are some core elements all expense policies should have:
- Policy Scope – Your policy scope defines which employees are eligible for expense reimbursements and the types of expenses covered. This section will also provide a brief overview of your guidelines.
- Covered Expenses – The covered expense section further defines eligible expenses laid out in the policy scope, such as travel, meals, entertainment, office supplies, and mileage.
- Approval Process – In this section, you cover the process from start to finish, including who authorizes and reviews transactions and timeliness.
- Reimbursement Limits – This section defines the reimbursement limits and specific instances when employees might need to exceed this threshold.
- Submission Deadlines and Documentation – This element will outline the required information for an expense to be approved, including receipts and invoices. This section will also outline what is considered a timely expense reimbursement.
Remember, your expense policy is customizable to your business. Take the time to develop policies and procedures that will streamline your operations and give you the most insights.
Guideline Examples by Category
Expenses can be reimbursed for any cost that is related to conducting or facilitating the activities of your business. Here are some common expense reimbursement categories and guideline examples:
Travel Expenses
Travel is a broad category and can include lodging, airfare, rental car expenses, meal expenses, and more. Within your expense policy, define what falls under travel and the related guidelines for incurring travel expenses.
For example, “Employees must book an economy class for flights under six hours. If the flight exceeds six hours, business class is permitted with supervisor approval.”
Meal Expenses
Defining meal expense guidelines is critical. After all, you probably don’t want to pay for an employee’s personal DoorDash.
For example, your expense policy might state, “Meals must be with a client or incurred during travel. Reimbursements are capped at $50 per day while on travel. Alcoholic beverages are specifically excluded from reimbursement eligibility.”
Accommodations
Accommodations include hotel bookings and overnight stays. It’s not reasonable for an employee to book a hotel stay when they aren’t out of town traveling, which is why it’s important to set parameters and expectations.
For example, “Hotel stays are eligible for reimbursement if the travel is more than one hour away. Booking should be at the most affordable rate unless prior approval from the Head of Finance is granted.”
Office Supplies
Office supplies is another broad category. This could include a portion of your employee’s Wi-Fi if they work at home or general office supplies.
For example, your expense policy might say, “Employees are eligible for a $100 per month reimbursement for Wi-Fi. All other office supply reimbursements are capped at $200 per month. Reimbursements above these thresholds require prior manager approval.”
Miscellaneous Expenses
Outlier expenses do happen, which is why it’s important to have this category defined in your expense policy. Any specific restrictions should also be listed here.
For example, “Expenses not on this list are subject to manager approval. Entertainment is specifically excluded from reimbursement eligibility.”
Best Practices for Implementation and Communication
Implementing an effective expense policy will take some trial and error. Here are some best practices to keep in mind as you put together your guidelines:
#1 – Ensure Department Collaboration
Finance and HR teams often need to work together to ensure clear policy communication. After all, your finance department might approve expense reimbursements, while your HR team will pay out the amounts. Before your expense policy is finalized, have a group meeting to determine if any language needs clarity and the best practices to streamline reporting and authorization.
#2 – Leverage Software Automation
Software can automate a majority of your expense reimbursement processes. For example, you can configure your expense reimbursement software to meet your company’s needs and policy guidelines, such as by implementing blocking or warning limits, creating limits per period, or adapting limits to user type. The right expense management software program will provide you with ultimate customization and remain user-friendly for your managers and employees.
#3 – Offer Training and Policy Reimbursement
You might understand your expense policy like the back of your hand, but that doesn’t mean your employees do. Take the time to offer training on your company’s policies and the expense reimbursement process.
This could be in the form of a sit-down meeting or with quick reference guides on best practices. You want your rules to be clear to employees, which helps with expense policy enforcement.
#4 – Constantly Update Policy
As your business begins to grow, you might come across situations that aren’t defined in your expense policy. Take the time to update your policy for these events to create a robust and comprehensive policy.
Similarly, reimbursement regulations can change. After these changes occur, it’s important to revisit your policy for accuracy and compliance.
Conclusion
Implementing a robust expense reimbursement policy leads to cost control, streamlined expense processing, and happier employees. However, crafting an efficient expense policy requires constant updates and revisions to align your policy with industry standards and prepare for growth.
For more information about creating your expense policy guidelines or to learn more about N2F, reach out to a team member today to schedule your free consultation.
