Employee Expense Reimbursement

What is Employee expense reimbursement?

Employee expense reimbursement involves the practice of employers compensating their employees for costs directly related to business activities that they have incurred while performing their duties. These expenses could include travel costs, meals, accommodation, office supplies, or other legitimate business expenses. The reimbursement process typically involves employees submitting expense reports with detailed receipts and documentation to their employers. Once verified and approved, the employer reimburses the employee for the eligible expenses. Employee expense reimbursement not only ensures that employees are not financially burdened by business expenses but also promotes transparency and accountability in the handling of company funds. It is a standard practice in many organizations to facilitate smooth business operations and employee satisfaction.

Examples of expense reimbursement

An uncomplicated instance of expense reimbursement occurs when an employee purchases items such as office supplies on behalf of the company and is subsequently refunded for the incurred expenses. The employee keeps the receipt and fills out a report showing what they spent. It becomes a valid reimbursement when it gets approved.

Employees can also get reimbursed for travel expenses like transportation, accommodations, and food by submitting an expense report after their trip. For instance, if employees travel to visit a client, they can claim the expenses for that trip. The amount reimbursed is usually calculated based on the standard mileage rate set by the company.

If your company uses a tool to manage travel and expenses, you can submit the reports as you incur the costs. Another example of expense reimbursement is when employees claim expenses they incurred while on business trips.

What counts as employee business expenses?

Categorizing business expenses can be done in various ways, but the most important thing is to follow the travel and expense policies set by the organization when employees pay for expenses personally.

If an expense falls into any of the categories mentioned below, it can be reimbursed as a valid business expense:

1. Necessity: Is the expenditure essential? Would any other employee in a similar role also have to bear this cost? If the expense is essential and unavoidable for the job, it qualifies as a valid business expense.
2. Personal Expenses: When employees use their own money for on-the-job expenses, they can file a reimbursement claim for those expenses.
3. Reimbursement Claim: If a staff member covers a work-related expense from their own pocket, they’re eligible to request reimbursement for it.
4. Job-related Expenses: Expenses incurred by employees solely for the performance of their job are eligible for reimbursement.

Remember, it’s crucial to adhere to the organization’s policies and guidelines when claiming business expense reimbursement.

Types of expense reimbursements

There are several types of expense reimbursements, each comprising different sub-categories. Let’s explore the primary types of reimbursements that are commonly offered.

Subsistence and travel expenses: Most expense reimbursements are for expenses incurred during business trips. These expenses include transportation (like airfare, train, and bus), hotel stays, and other expenses related to the trip. You can submit all these expenses in one report for reimbursement. The finance team will review and settle the claim if it is accurate and authentic. Expenses related to the logistics of a business trip are considered valid for reimbursement. It is important for the company’s travel and expense policy to define and set limits for these expenses.

Client entertainment and meals: Employees may have meals or entertain clients or customers to build and maintain business relationships. These expenses are reimbursable as they are in the company’s best interest. Employees may also pay for meals during business travel, and these expenses can be claimed for reimbursement.

Communication, office supplies, and incidental expenses: As businesses operate globally, employees may be working from different locations. To ensure connectivity, companies may reimburse expenses related to cellular phone charges, internet connectivity, laptops, and tablets. Employees traveling for business purposes can claim such expenses within the limits set by the company’s policy.

Other expenses: Work-related expenses that are not covered in the above categories can also be reimbursed. It is the organization’s responsibility to define and provide an exhaustive list of such expenses. For example, employees may be encouraged to have health insurance and can claim some healthcare expenses based on the policy. Reimbursement requests for fuel expenses incurred while using personal vehicles for client visits are also accepted. Organizations may also reimburse subscriptions to professional magazines, gym memberships, and similar expenses.

How should employees report expenses?

A good way for employees to let the company know about their business travel expenses is by using an expense report. An expense report is a clear list of all the costs employees have paid on behalf of the company during their travels or other work-related activities.

In an expense report, you will find:

• Employee’s information (name, employee ID, etc.)
• The current date when the report is being submitted
• Different columns showing different categories of expenses (like transportation, accommodation, meals, etc.)
• The dates when these expenses were incurred
• Information about the approving manager who reviews and approves the report

Expense reports are comprehensive, so they include all the necessary information that finance teams and other departments need without the need for constant back-and-forth communication. In addition, employees attach the original receipts of their expenses to the report, making it easy for the finance teams to verify them.

Managing expense reimbursements

Consider replacing the pictures of stressed and overwhelmed employees with a simple and automated expense reimbursement system.

Expense reimbursements are an important part of managing expenses and paying your employees promptly. By efficiently managing and tracking expenses, you can optimize the reimbursement claim cycle and reduce stress for both you and your employees.

Certain individuals may opt for manually managing expense reimbursements, yet the simplest and most effective method entails automating the entire process. Let’s take a closer look at each aspect of managing the expense reimbursement process.

Keeping track of employee expenses
A significant hurdle faced by finance teams involves the manual tracking of employee expenses. Maintaining a comprehensive understanding of expenditure becomes challenging due to the abundance of reimbursement claims. To solve this problem, it’s beneficial to centralize the process. Using an automation tool creates a user-friendly experience for employees and provides valuable reimbursement data in one place. With dashboards, you can easily view, track, manage requests, and generate reports for better decision-making.

Managing accounting for expense reimbursements
Even with a good expense policy, manually accounting for expenses and reimbursements can be a hassle. It takes time to collect proof of expenses, verify claims, check approvals, and settle claims. However, automating the travel and expense management process can overcome these challenges. The software allows employees to capture expenses on the go, file claims quickly through a mobile app, receive instant approvals, ensure 100% compliance with policies, and provide real-time access and visibility to information.

Streamlining reconciliation
A significant amount of time is often wasted as finance teams spend days authenticating expense reimbursement claims. Automation can solve this problem and offer important advantages in the reimbursement process. By cross-checking expenses for policy compliance as they occur, the time needed for authentication is saved. Data entry errors are eliminated since there is no manual input. Approval workflows, whether linear or deviational, are automated, eliminating delays. With real-time expense tracking, reconciliation becomes automatic, quick, and easy for the finance team.

Challenges in expense reimbursement

Organizations often encounter various difficulties when dealing with employee reimbursements. The goal is to discover a tool or solution that can help overcome these challenges and make the process more efficient.

Restricting your employees’ personal cash flow
The main problem with the traditional process is that employees have to spend their own money before getting reimbursed. This can cause financial strain as it takes a while to receive the reimbursement. Even if employees use their personal credit cards for business expenses, it still leaves them short on funds.

Unclear expense policies
When travel and expense policies are complicated or unclear, employees get confused about what they can spend on. This leads to non-compliant claims or overspending. Following the policy is important as it makes the reimbursement process smoother and easier.

Lack of spend visibility
Employees are spending money on behalf of the company, but it’s difficult to know how much and where they are spending in real time. This makes it challenging to approve and manage expenses in a timely manner. It becomes even more difficult when a large number of expense claims pile up at the end of the month, affecting account closing processes.

Excessive paperwork
Effectively handling receipts poses a significant obstacle for both individuals and businesses alike. Employees have to keep track of receipts for expense reports, which becomes even more difficult when they travel frequently or have to send receipts to a different location. Finance teams also face difficulties in matching receipts with expense reports, saving them for audits, and reconciling them. Automation can simplify this process.

Error-prone processes
Manually entering expenses, tracking them, and recording them in books or spreadsheets is prone to errors, especially when there are many entries or tight deadlines. Digital processes are much easier and reduce the risk of errors.

How to simplify your expense reimbursement process?

Simplifying the expense reimbursement process can save time and effort for both employees and the finance department. Below are several actions you can implement to streamline the procedure:

1. Establish clear expense policies: Precisely outline the guidelines and regulations concerning reimbursement of expenses. Ensure that employees have a clear comprehension of which expenses qualify, the necessary documentation, and any expenditure restrictions.
2. Use a centralized system or software: Implement an expense management system or software that allows employees to submit their expense claims electronically. This eliminates the need for paper-based forms and manual processing. There are numerous expense management tools available that can streamline the entire process.
3. Provide easy-to-use expense templates: Create expense claim templates that are user-friendly and provide clear instructions. This will make it easier for employees to accurately enter their expenses and provide all the required information.
4. Implement a mobile app: If possible, choose an expense management system that includes a mobile app. This allows employees to capture receipts and submit expenses on the go, making the process more convenient and efficient.
5. Automate approval workflows: Set up automated workflows for expense approvals. Define the approval hierarchy and configure the system to route expense claims to the appropriate approvers based on predefined rules. Automation reduces delays and ensures a smooth flow of the reimbursement process.
6. Integrate with accounting systems: Integrate your expense management system with your accounting software. This enables seamless transfer of data, eliminating the need for manual data entry and reducing the chances of errors.
7. Enforce timely submission: Establish a policy requiring employees to submit their expense claims within a specific timeframe. Timely submission ensures that expenses are recorded promptly and reimbursement can be processed efficiently.
8. Provide clear communication: Clearly communicate the reimbursement process to all employees. Make sure they understand the steps to follow, the required documentation, and any specific deadlines. Regularly communicate any updates or changes to the process.
9. Streamline reimbursement methods: Consider using direct deposit or automated payment methods for reimbursements. This eliminates the need for issuing checks or manual cash handling, making the process faster and more secure.
10. Regularly review and improve the process: Continuously monitor and evaluate your expense reimbursement process. Collect feedback from employees and stakeholders to identify any bottlenecks or areas for improvement. Implement changes to optimize efficiency and reduce administrative burdens.

By implementing these steps, you can simplify and streamline your expense reimbursement process, saving time, reducing errors, and improving overall efficiency.

Employee expense reimbursement template

Companies usually have a specific form for employees to use when requesting expense reimbursement. If such a form exists, it’s best to use that form to submit your reimbursement claim.

If there is no pre-set form, here are the important things you should include in your reimbursement claim:

1. Personal information: Fill in your name, employee identification number, department, and any customer details if the expense is related to them. Also, provide your bank account information if you want the reimbursement to be directly transferred.
2. Expense details: Write a simple description of the expenses you incurred, including the date and total amount. Make sure to provide all the necessary information for the finance team to verify the expenses.
3. Proof of expense: Attach receipts, bills, or any other evidence that supports your reimbursement claim. The total amount you claimed should match the amount on the attached bills.
4. Signature: Sign the expense reimbursement claim form to confirm that the information you provided is accurate and true.
5. Submission: Please ensure that the filled-out form is delivered to the relevant department. In most cases, Human Resources will verify the claim before forwarding it to the finance team for approval and processing.

Following these steps will help ensure a smooth and efficient process for requesting reimbursement for your expenses.

Streamlining the reimbursement procedure for employee expenses offers a plethora of advantages for both individual employees and the entire company entity. By establishing clear expense policies, implementing centralized systems or software, and providing user-friendly templates, companies can streamline the reimbursement process and reduce administrative burdens. Integrating with accounting systems, automating approval workflows, and enforcing timely submission further enhance efficiency and accuracy. Clear communication, streamlined reimbursement methods, and regular process reviews contribute to a smoother experience for employees and a more efficient finance department. By implementing these strategies, companies can simplify their expense reimbursement process, saving time, reducing errors, and improving overall productivity. Simplifying this process not only benefits the organization but also enhances employee satisfaction by ensuring timely and accurate reimbursement for their expenses.

FAQs on Expense reimbursement process