Reimbursable expenses: how to manage claims for your business

In a previous article on this blog, we explained the basics of setting up an expense policy. There was just one thing that we left out — the kinds of expenses you should include. That’s what we’re looking at today.

No expense policy is complete without an exhaustive definition of everything that your employees can write off as a business expense. Without one, it could be hard to decide if specific payments are valid for reimbursement, potentially leading to disputes with employees.

So which costs should be covered and which ones shouldn't? Let's find out by taking a deep dive into reimbursable expenses.

What are reimbursable expenses?

It's important to define what we're talking about here. When employees incur expenses on behalf of your company, they'll occasionally need to spend their own money. It is both morally and legally required that the company reimburses them for these payments promptly and in full.

But this doesn't mean that employees get to claim reimbursement for every payment they make. To keep things fair and transparent, you need to set clear rules for what counts as a reimbursable expense.

First off, the expense must have a clear business character. It should be a purchase that's related to the services of an employee to his or her employer - in other words, something that an employee needs to do their job.

This is a pretty broad definition, and could cover anything from an overnight hotel stay during a business trip, to an extra monitor for their work computer. The rules vary slightly from place to place so be sure to check your local legislation for the exact legal definition.

Secondly, it's vital that they have evidence of the payment in the form of a receipt, invoice or other proof of purchase. The information that should be displayed on the record to make it legally valid differs per country, but at the very minimum it should include the total amount (with tax), the time and place of purchase and a description of the product or service provided.

Finally, any reimbursable payments should always be reported to the responsible department within a reasonable amount of time. Any surplus amount that the employee has left from the original reimbursement should also be paid back to the employer within the same time frame.

If an expense passes these tests, it might very well be eligible for tax deduction purposes. (For UK businesses the exact rules are clearly laid out in this online guidebook.)

Reimbursable expense examples

Now that we know more about the characteristics of valid expenses, it's time to dig deeper into the various categories that your company could consider reimbursing.

Travel expenses

As one of the biggest sources of employee reimbursement, company travel covers a large number of things. Traveling for business purposes means making a lot of payments, and most of these should be seen as valid expenses.

corporate-travel-expense-policy

It all starts with getting to the airport — a short trip that starts racking up costs by taking public transport or a taxi service. The flight itself also accounts for a large sum, and should include any in-flight food and drink purchases up to a reasonable amount. Upon arrival at the destination, lodging costs are another staple expense that needs to be covered.

While all of these expenses are relatively common, there are also some less known travel costs that are worth mentioning. For example, visas or other travel documents might be needed when traveling to some parts of the world, while others could even require employees to get vaccinated. Both of these things don't come cheap, and seeing as they’re an unmissable part of the business trip it makes sense to cover them as expenses.

Check out how to set up a stellar travel expense policy in a previous blog post.

(For UK readers, here's our guide to HMRC travel expenses.)

Meals and entertainment

If an employee is having dinner on a work trip, it should automatically be covered as a travel expense — of course. But then there's the possibility that an employee wants to treat a client or contact to dinner, because they think it would positively impact the business relationship. In this case, covering these costs would definitely be in the interest of your business.

travel-expense-policy-food

The scope of these kinds of “networking“ expenses should include most entertainment, like going to a music or sporting event — but it only counts if the client is actually present.

(We explain HMRC's meal allowance rates here.)

Transport costs

During a trip, most forms of transport should be covered — it's work travel after all. But your employees might incur travel costs when they're not on the road, for example when commuting in public transport or driving to the office every day. Should you cover these costs?

This really depends on a lot of different things. A well-funded and successful enterprise might want to chip in on fuel costs, but a young startup should perhaps put its money elsewhere. If your company is looking to be more sustainable, it might make more sense to offer something different altogether, like sponsoring the purchase of a bike.

Make sure to pay attention to the specific rules per reimbursement category. For example, if UK employees use their private vehicle for business purposes, the HMRC has defined certain limits on how much you can pay them for it.

Office expenses

If you want your people to be able to do great work, it makes sense to give them access to the best tools. Nothing can mess with productivity levels like a slow computer or broken keyboard, so you should include these and other tools in your expense policy.

Communications

When your team is constantly on the move, you want everyone to always be available. That's why you might want to cover your employees' phones and cellular plans — especially for positions that involve talking a lot of calls, like in sales.

For companies that exclusively work with people in a single, local office, this might not be interesting — as always, make sure to think if this applies to your situation.

How to track employee expense reimbursements

For most companies, the hard part isn't defining what employees can claim reimbursement for. As we've just seen, these are mostly classic company costs, and staff will mostly be able to use their common sense.

The harder part - both for individual employees and the company as a whole - is staying on top of these costs.

For the employee

It's tricky for employees for a few reasons:

The way they pay at work is different from how they pay in their private lives
Costs can be small and irregular, and therefore easy to forget
They need to understand the right way to report expenses, and especially what kinds of documents are required

Overall, the biggest issue is that there either isn't a clear, formal process. And if there is, most employees don't know about it.

For the company

In this case, we're really talking about the finance team (or in smaller companies, the office manager). They're the ones who have to deal with each employee expense claim.

For them, the problems are more glaring:

Expense reports are often incomplete and full of errors
Claims can arrive any time during the month or quarter, and employees expect to be reimbursed promptly
Processing claims requires a lot of manual data entry, which is even worse when there are errors

To overcome these challenges, you'll need to make changes. And the single best way to improve expense claims for both employees and finance teams is to automate all of the worst parts.

This starts with a good expense management tool to help employees make claims. Most of these start with a mobile app that walks the team member through their claim. There will be mandatory requirements to ensure that no information is missing.

And the best part - the employee can simply take a photo of their receipt. They don't have to rummage through their wallet once a month and try to remember what every payment was for. Which is excellent.

But the real benefit of these systems is their impact on finance teams. For one, there is no data entry at all. The employee already filled in all the information, and there's no need to copy it to a spreadsheet.

The finance manager opens up their dashboard, does a quick check of the employee's claim, then approves (or denies) it for payment.

This process takes seconds
There's no need to search through your email inbox and open attachments
Receipts are saved digitally to the correct folder
Approved claims are sent to your accounting tools for payment

When you think about the sheer amount of your day spent on manual processes, it's alarming. Expense reports are probably already costing your travellers and finance team valuable time, simply because the system is awkward.

Reimbursable expenses made easy with Spendesk

Unfortunately, even the best expense policy can't keep expenses from being a bit of a hassle — for the financial department it's a big administrative burden, while employees often need to wait a long time to get reimbursed.

But successful spend management can make things a whole lot less painful.

Reimburse with Spendesk

We've built special tools to manage the full expense process for your teams. They can make a claim, receive managerial approval, and send the complete request to the finance team in seconds.

And the most exciting part: finance teams can now reimburse employees directly from the Spendesk platform. It's virtually instant, and teams no longer have to wait until payroll to be reimbursed for work expenses.

That's fairer, faster, and works better for everyone involved!

If you'd like to test it out for your business, we'd love to hear from you: