Understanding Expense Reimbursement For Your Business
From hotels and flights to car mileage and hospitality, managing expense reimbursement can be a tedious and time-consuming task for business owners and finance departments.
Without clear spending rules and processes in place, it’s easy to lose track of transactions or face uncertainty about tax liabilities. That’s why it’s important to create a formal policy for reimbursed expenses - one that’s easy to understand, and comply with.
In this article, we’ll get to grips with what a robust expense reimbursement policy looks like. We’ll also examine the benefits of using automated expense reimbursement tools to help you keep control of your expenses, without overburdening your staff with monotonous manual processes.
Is it compulsory to offer reimbursed expenses?
Employers do not technically have to offer reimbursement for travel, mileage or other expenses. However, most companies provide reimbursement as part of a perks package, to attract and retain staff. So, as good practice, it's probably something you should do - and learning more about it is your first step.
The benefits of a robust expense reimbursement policy
A well-drafted reimbursement policy can offer protection for your company and employees, with some of the benefits including:
• Boosted financial performance: Placing defined limits on employee expenses can positively impact your bottom line. You can quickly identify areas of excess expenditure, as well as monitor and address them.
• Improved employee morale: Once employees understand exactly what they can claim for, and how they can do so (as well as when they’ll receive reimbursement) they’ll be less likely to feel disgruntled and “out of pocket”. About 40% of employees who use their own funds for work-related expenses experience cash-flow issues due to lags in reimbursement. So it’s important to avoid delays.
• Fewer unjustified claims: Having clear boundaries around what can be claimed will deter employees from making unjustified expense claims.
• Compliance: Under employee expense reimbursement law, most employers are taxable on any reimbursed expenses. Expense taxation can be quite complex to manage, especially for smaller businesses. Having a clear expense reimbursement policy will help you to stay organised - and if you opt to use automation, this can make things easier still. Automated expense management tools can ensure you record and categorise your expenses efficiently. Then you can quickly identify any inaccuracies in your expense reports, and ensure your books comply with the tax authorities.
• Reduced burden on employees: By providing clear workflows and processes for staff, you’ll make it easier and quicker for them to document expenses. In fact, this is another key area where bookkeeping and accounting automation can help.
If you’re going to offer reimbursements, you need a reimbursement policy. Otherwise, you risk upsetting employees, incurring large and unplanned expenses, or poorly documenting the expenses you reimburse.
Expense reimbursement policies: what to consider?
It’s important to create an expense reimbursement policy that suits your specific business needs. You may, for example, want to include parameters relating to travel sustainability, or build in extra flexibility around expense handling. If your employees travel extensively by car, you’ll also need to consider the complex rules around mileage reimbursement.
Let’s dive into some best practice recommendations:
1. Define your expense categories
Be clear about which expenses can be claimed back, and by whom. Define boundaries for expenses, including maximum allowable amounts.
2. Be clear on receipts
Make sure employees understand the types of receipts you accept - do they need to originate physically from a register, or can they be sent via email? Do your receipts need to include VAT? Are purchase confirmations from booking sites acceptable? Explain exactly how your receipts need to be submitted, and whether employees need to photograph them before adding them to expense reports.
3. Remove the paperwork
Whenever possible, remove the paperwork aspect. Use digital forms and automation to streamline processes. This reduces the risks of losing hard copies and helps to avoid data breaches.
4. Set deadlines
Slow expense reporting puts a burden on bookkeeping processes and means you could miss tax opportunities, so make sure employees know when they need to complete their expense reports.
5. Create approval workflows
Make sure your policy covers who approves expenses, and define the workflows for approvals. Digitisation can help you automate workflows and define which types of expenses, or spend thresholds, are eligible for auto-approval.
6. Incorporate technology
Consider ways technology can be used to streamline your expense management workflow. This will save all your staff (including your finance team) time and effort. Plus, bookkeeping automation tools can assure the safety of your data.
How automation can help you implement your expense reimbursement policy
Once you’ve created a reimbursement policy, you’ll need to ensure that people can follow it effectively. This is one more area where automated bookkeeping solutions can help.
At Dext, we built a solution that is designed to do just that, for both businesses and bookkeeping professionals. A tool like Dext makes it easy for staff to submit their expenses - making it also easier for you to manage reimbursements. It gives you peace of mind that your policy is being fully adhered to, and ensures you’re ticking all the boxes for tax compliance.
Here’s how automation technology can help you:
• Categorise expenses: Categorising your expenses makes them easy to track and helps you comply with employee expense reimbursement law taxation requirements. Dext applies advanced OCR and AI to extract data and categorise all expense claims automatically.
• Remove paperwork: By digitising your expense reimbursement processes, you can wipe out the majority of the paperwork and reduce time spent on risky manual data entry. Dext gives you the option to apply automated form filling, making it more likely that expenses will be submitted on time.
• Capture receipts: The Dext app basically turns employees' phones into receipt scanners, allowing receipts and invoices to be captured immediately. This prevents them from becoming lost, damaged, or not submitted at all.
• Accounting software integrations: Dext also integrates with all major accounting systems such as Xero, QuickBooks and Sage. That means you can transfer all your important financial information over quickly and easily - helping your books stay up-to-date and ready for submission.
• Approval notifications: You can create approval workflows and tag approvers in Dext. You also get a complete overview of the audit history as well as can define multi-step and stage approval workflows for users and groups. This ensures the right processes are followed every time. You can also set conditions by value, supplier category or project, and enable auto-publishing after approval.
• Mileage tracking: Dext’s new mileage tracking feature allows claims to be tracked and added effortlessly by recording trips automatically and adding them to your account via desktop or mobile.
Managing expense reimbursements can be tricky, especially if you’re a smaller company with limited resources. If you’re currently asking employees to submit manual expense reports, you’re wasting valuable time between your bookkeeper and managers. This not only takes key staff away from the strategic aspects of their jobs but can turn into an additional cost for the business.
By using software that can help you automate such processes, you’ll be able to reduce downtime and make your expense policy easier to follow - meaning employees will be more inclined to follow it. Dext’s online bookkeeping tool provides you with full expense transparency and data quality - ensuring your records are up-to-date, accurate and compliant across reimbursement processes.
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