An Employer’s Guide to Managing Employee Reimbursement Expenses Efficiently

Written by
Marissa Saini
Last Modified on
March 28, 2024

Whether a start-up or scale-up, every business has regular expenses to take care of. Sometimes, even employees indulge in business expenses, and it can become complicated soon. That’s where expense reimbursement and expense management becomes necessary.

So let’s understand the meaning of reimbursement, its importance, and the kind of expenses you should include in your employee expense reimbursement policy.

What is the meaning of reimbursement? 

Reimbursement is money repaid to an employee for work-related spending like business expenses or insurance costs. A few common examples of business expenses are company car, meals, travel, and utilities. These expenses can be reimbursed to the employees— fully or partially— according to the company’s expense policy.

However, reimbursement is often confused with compensation because the employee receives money in both cases. But, they are two separate concepts.

Compensation is the money paid to the employee for the work they do — think salary, wages, and bonuses. Here, your employee’s salary is payable every month as opposed to reimbursements which are circumstantial. 

Let’s understand the differences between the two with an example. 

Say your Business Development Manager, John, is on a business trip in Louisiana. His flight fares and accommodation are already paid for by the company. However, he ends up paying for dinner with the client during his stay. John makes a note on the receipt along with the meeting details.

When he flies back home, he must submit the expense claim to the finance team. Since he paid for the dinner out of personal cash and had a clear business justification, the company will repay the money to him. This is reimbursement.

On the other hand, John receives his salary at the end of the month for the work done. This is compensation. 

When not done the right way, employee expense reimbursement is a hassle for both — businesses and employees. Besides waiting until payday, an employee has all the paperwork to do as well. The process also includes filling out the entire log of expenses, having it signed by a manager, and ensuring it’s passed to the finance team for repayment. The finance team then has the enormous task of verifying the receipts. Again, this is possible only if original and complete receipts are attached.

That is a lot. Perhaps, there has to be a more satisfactory way to handle this?

There sure is. Before we get up to speed on that, let’s understand why employee expense reimbursements are important.

Importance of employee expense reimbursement

Employee expense reimbursements are key for an organization because:

  1. It allows employees to make necessary spending while the employer has control over unnecessary expenditure.
  2. Employers have the benefit of treating employee reimbursements as a business expense. This helps them to carry out their tax return submissions easily thereby decreasing the burden of taxation.
  3. Timely employee expense reimbursements translates to more usable cash for the company that can be invested in reaching business goals.

In today’s modern world, where your staff work from the office one day and from home the next, how do you ensure that critical processes like employee expense reimbursement don’t break?

Due to this unpredictability, it has become more important to focus on reimbursement claims and do your employees right. Paying employee reimbursements promptly and in line with clear rules is key to empowering them and making your business more efficient.

Businesses can no longer spend their valuable time running reports and timing all repayments with the next paycheck. After all, reimbursement claims need to match the pace of the world we live in now.

Different types of reimbursable expenses 

Now that we know the importance of employee reimbursements, let’s dig deeper into the categories of expenses that qualify for reimbursement claims.

Business expense reimbursements

As one of the most significant sources of employee reimbursement, this is a catch-all category for all the money spent for business purposes. 

Business travel, for example, begins with booking flights, and the costs start racking up when the trip includes ground transportation — public transport or rental car service. And after reaching the destination, there’s hotel accommodation as well.

These expenses are relatively common compared to other lesser-known (but important) costs. Travel documents, visas, and getting employees vaccinated are all significant reimbursable expenses that you will incur before a business trip. 

There are also other business costs like:

1. Business supplies and tools:

These are items purchased and usually used up during the same year. The most common are office supplies, including staplers, sticky notes, highlighter pens, and tools to run copiers, printers, and other office machines.

2. Training and education: 

Employers may invest in their employees’ further education so that they can add value to the company later on. This might include:

  • Seminars, webinars, and conferences
  • Classes or workshops to upskill and upscale
  • Subscriptions to industry-specific publications
  • Books related to a particular industry

3. Marketing expenses

Marketing expenses are often completely deductible, and they might vary every year or happen regularly. They include:

  • Social media posts or marketing campaigns
  • Website design or revamping
  • Logo design
  • Billboards
  • Print ads in newspapers or magazines
  • Radio ads or partnerships
  • Televised commercials
  • Business cards
  • Flyers
  • Event sponsorships

4. Business meals

Sometimes employers also have regular business meals to pay for, like client lunches or giving special meals and snacks to your staff. They vary each month, so it is essential to keep detailed receipts of all business meals for effortless repayment.

Auto mileage and travel reimbursements

While commuting, many modes of transport are usually covered. But employees might also incur travel costs when driving to work by themselves or visiting a client site. Should these costs be covered then?

Most corporate mileage reimbursements apply to personal vehicles like cars, vans, or bikes but only for regular business activities. It does not cover commuting to and from work as it only includes those journeys that employees make during work, like trips to buy essential business supplies or meetings with current and prospective clients.

A clear policy for handling employee mileage reimbursements is an important financial strategy. Your employees should know what constitutes business travel to claim a mileage allowance. 

Most companies have an approved per-mile rate from their national revenue agency, as each country has its own rates. It includes all the costs — fixed and variable – involved to travel. This is also called the standard mileage rate. 

However, it is not necessary to always use the standard mileage rates. You can set your own mileage reimbursement rate, but no matter what, it’s important to let your employees know exactly what it includes. If you’re using a standard mileage rate, let them know that it covers the fuel price and all the costs of each trip (tax, depreciation, etc.).

Here’s another example:

An employee drives to meet with the company’s suppliers, and the distance is 60 miles each way. But, the employee’s usual commute is 15 miles each way, so 30 miles must be deducted from the reimbursement claim. Here, 90 miles can be claimed and multiplied by the standard mileage rate (0.70). So the total claim is $63.

Medical expense reimbursements 

Healthcare is expensive, uniquely complex, and involves multiple steps that often result in denied claims. As it is a valuable benefit for employees, it’s natural to seek reimbursement from their employers. 

A wide range of options can be included as reimbursable expenses like health insurance premiums, coverage for dependents, and regular health checks and treatments.

Some employers offer other popular benefits, like dental and vision insurance and paternity and maternity coverage. 

Employee stipends

Think of a stipend as an allowance given to each employee, except that it is fixed. They are a thoughtful way to support your employees and say, “I care for your overall well-being.” 

With the rise in remote teams, stipends are becoming a popular option for companies to reinforce their culture and shape their brand story. A few of them are:

1. Health insurance stipends

When employers, primarily small and growing businesses, can’t afford to offer formal health benefits to their employees, they decide on a taxable stipend for healthcare. This option is cost-effective, easy to manage, saves time, and is already included in employees’ income — not as a separate benefit.

For instance, you can offer a monthly healthcare stipend of $200 to fulfil your employees’ medical expenses.

2. Wellness stipends

There’s a lot of fabric attached to a job — the constant hustle, hectic deadlines, mental burnout, and physical exhaustion. This is where wellness stipends come into the picture.

These funds are used exclusively for employees’ wellness, such as gym memberships, swimming classes, Zumba sessions, online therapy, etc. They are not limited to just a monthly presentation on eating right and a yoga class once a quarter. It is a comprehensive process where this stipend is given out regularly: monthly, quarterly, semi-annually, or annually.

3. Remote work stipends

Working from home has forever changed the workplace culture, including workplace benefits and remote work stipend is a crucial example. 

It aims to cover the extra costs incurred by working from home and can be paid once as a lump sum, regularly, or however your company sees fit.

Remote work allowances like a quarterly stipend of $150 can benefit you and your employees, enhancing productivity, retention, and growth.

What are non-reimbursable expenses?

The company can only reimburse those expenses mentioned in the reimbursement expense policy. Expenses that are personal or are not backed up with enough evidence are non-reimbursable. 

Say your employee visits Portland for a business trip, but his activities stretched the line between a “business trip” and a “holiday.” Also, let’s assume there is no documentation to validate the business trip, and the majority of the employee’s time was spent barbecuing with friends instead of closing client deals. 

In this case, the employee can no longer claim business travel expenses.

Other non-reimbursable expenses include laundry or valet services during travel, rental car upgrades or accommodation upgrades, annual fees of personal credit cards, traffic violation fines, travel gadgets, etc.

Reimbursement challenges that businesses face

The way most businesses treat employee expense management is riddled with inefficiencies, which opens the door to a large room of errors. A few of the most recurring challenges are:

Tedious manual data entry

Accurate and timely data is vital for every company’s money management and decision-making. However, manual data entry, a common practice in many organizations, is laborious and leads to problems like inaccurate information, prolonged periods in training employees, and duplicate invoices. 

Human error is inevitable, and chances of fatigue and absent-mindedness are high when it’s a small team. This results in entering the wrong quantities in the company ledger and lost or double-billed invoices. 

Exhausting receipt management

Seamless, stress-free receipt management is the secret to restful nights for employees and finance teams. But often, employees get frazzled when they need to hang on to all the receipts from a trip and submit them on time while also ensuring they comply with the existing policies. 

This can be an inconvenience as they must ensure that correct details are filled in within the stipulated time. As for the finance teams, they have to closely inspect these reimbursement claims with the list of items that are company-approved. 

Ambiguous expense policies 

Sometimes, existing policies confuse rather than clarify the details of expense policy to employees. This leads to dealing with non-reimbursable expenses and is the beginning of a splitting headache for the finance department.

Spending personal cash or credit cards for out-of-policy expenses will only result in employees losing out on their money. In this case, the entire reimbursement process becomes a potential roadblock, builds up employee resentment, and hampers business growth.

Disengaged employees

When employees spend on products and services out of their own funds, and sometimes big amounts, it can put them under a lot of stress financially. Moreover, lengthy approval durations with no transparency leads to late payments and disengaged employees. 

Lack of control over expenses

Sometimes, employees submit receipts for those expenses that do not align with the company’s expense policy.

This results in confusion as there is limited/no control on the extent of expenses, which becomes a budgeting nightmare for the finance team.

Possibility of fraudulent claims

Money and malice go hand-in-hand. Expense fraud is quite common in most enterprises as it’s hard to know whether an expense claim is genuine. 

Some of the most prevalent frauds are fictitious, mislabelled, duplicate reimbursements, and inflated expenses. Perhaps, it is important to ensure the legitimacy of expenses and establish robust internal controls to prevent fraudulent claims.

How to manage reimbursable expenses?

Setting clear reimbursement policies

 The first step to improving the reimbursement process is creating guidelines and clearly communicating them. It’ll save the finance team several precious hours if they let the employees know the reimbursable expenses and if there is a specific requirement or approval needed before submitting the invoices.

For example, does your employee need to purchase a particular service within a limited    budget? If yes, can the expense be made from multiple vendors? 

Answering questions like these are helpful for employees and finance teams as it removes the possibility of mistakes and empowers your team members to spend reasonably.

Make receipt management effortless

One of the biggest challenges for a finance manager is unclear, inconsistent, and missing receipts. It involves heavy investment in time and resources to track complete information before reimbursing them.

Setting a uniform way of collecting the submissions is the easiest way to fast-track the reimbursement process. Many businesses also use automation tools that reduce effort, save time, and are easily accessible. 

Streamline approval processes 

Without an approval process, all the hard work and energy put into employee expense management is pointless. Consider streamlining it with transparency to achieve success.

At the quick pace of modern businesses, organizations can use standardized approval processes to avoid bottlenecks and minimize room for oversight. All of this increases the efficiency of the reimbursement process and ensures employees are paid on time.

Set specific predefined budgets

Creating and setting up a budget helps the finance teams control expenses — money that is spent and money that you will need in the future. A predefined budget can drive important business decisions like reducing unwanted expenses, investing in new opportunities, or hiring more staff.  

With the right budgeting plan, you can prioritize your spending, alter your business plan, and find ways to keep your business out of debt. 

Create centralized systems

On many occasions, there are high volumes of claims from multiple channels. Receiving these requests from a centralized source would prove more efficient and smooth.

Issuing a unified company card can do away with the draining process of repeatedly submitting invoices. Moreover, setting a budget will ensure that employees are mindfully engaging in spending, and finance teams can easily access the transactions’ history to justify the expenses.

You can also consider using a business expense automation tool in your existing process to speed up the response time and store all the reimbursement data on a single platform.

Monitor and forecast

The biggest benefit of centralizing all the consistent and relevant data is that it enables you to monitor your money flow easily. The finance team can pinpoint the source of data instantly and generate reports that can be used to forecast and discuss business strategy.

Moreover, a single dashboard can also help identify opportunities and loopholes that can help continuously improve the reimbursement process. 

Automate the tedious parts

Being such a data-heavy process, employee expense reimbursement relies on detailed and accurate documentation. This usually results in errors, slows down the payments, and frustrates everyone involved.

As an employer, it is a legal and moral obligation to let your employees know when they will receive their payment. The best way to overcome these challenges is by automating the reimbursement process. And this begins with an easy expense management tool to improve the process of sorting expense claims for your staff and finance teams.

Besides fulfilling the reimbursements, it also helps if you automate your book-keeping for faster book closures and calculate accurate tax benefits. The entire process takes seconds and saves you hours.

Aspire offers one of the best expense management tools for small and growing businesses by reducing the biggest administrative burdens of the financial department and chopping off employee wait-time. 

And here’s the good news: It manages the entire expense process for all your teams from a single platform. It’s reliable, faster, and works better with every team and everyone! 

Want a sneak peek? Book a personalized demo with our expert today and see how Aspire can help to manage your finances better!

Download this article as an e-book: An Employer’s Guide To Managing Employee Reimbursement Expenses Efficiently

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About the author
Marissa Saini
is a seasoned writer and an avid trendspotter across business finance, personal finance, travel and lifestyle industries. With writing history at SingSaver, INK, and ohmyhome, Marissa leverages her broad range of experiences to simplify finance and make readers financially savvy.
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