Employee Expense Reimbursement Policy
Table of Contents
An employee reimbursement policy has different terms related to reimbursements in the organization. These expenses are those which employees have undertaken on behalf of the company. For this reason, reimbursements for work-related tasks have to be done by the company. Note that those amounts reimbursed are separate from the original salaries paid by the organization.
This policy helps the organization to make sure that the employees do not misuse this rule of refunding the employees. The expense policy template ensures that the employees have a limit above which there is no reimbursement provided. It helps the organization to minimize costs and have control over the employees’ spending. Our policy template helps you monitor employee spending effectively.
What is an Employee Reimbursement Policy?
An employee reimbursement policy includes processes for repaying employees for work-related expenses. It is considered a payment because the employee incurred these expenses personally. These can be traveling and office supplies.
An employee reimbursement policy is a reimbursement for valid business expenses. The policy helps with the employee’s expectations and boundaries related to expenses.
This policy is implemented in the organization to provide employees with a fair reimbursement and on time. Having a clear policy in hand will help track and manage financial transactions easily.
In this Expense Reimbursement Policy Template, you will get:
- The purpose of implementing this policy.
- The applicability of the expense policy.
- The meaning of business expenses.
- The meaning of qualified expenses.
- The meaning of unqualified expenses.
- The guidelines regarding the policy.
- The provisions regarding the method of employee reimbursement.
Get a Free Employee Reimbursement Policy Template
The reimbursement policy for employees shows the process and various guidelines. This is for employees who are claiming reimbursements for business-related expenses. Please check out our ready-to-use template below to help you implement this policy effectively.
“Name of the company” expects its employees to be responsible when incurring various expenses for business-related purposes and to be professional when applying for reimbursement. Note that the organization is accountable for reimbursements for justified expenses.
Purpose
The policy describes all the reimbursements related to business expenses. These are the expenses incurred by the employee first from his own pocket.
Scope
This policy is applicable to all employees who have received permission to incur work-related expenses.
Work-Related Expenses
Work-related expenses are those that an employee incurs when they are performing their work duties. They are mentioned below:
- The expenses are paid by the employee and not reimbursed to him.
- The expenses have recorded proof, like a receipt or a bill.
- The expenses were directly related to earning income.
Qualified Expenses
There are various expenses that are to be considered work-related. Some of those expenses that are eligible for reimbursement are mentioned below:
Work Equipment
There are purchases of various gadgets and equipment to increase efficiency. These include laptops and stationery.
Meals with Clients
These expenses are mentioned here, including lunch or dinner with clients. This is done to seal business deals. These meetings should be scheduled in advance and authorized by the HR department.
Double House-Keeping
If any employee has a second household for work reasons, this expense is also mentioned in the policy. The expenses are discussed below:
- Rent.
- Necessary furniture (bed, TV, a set of chairs, a table, kitchenware, and a sofa).
- Essential bills (electricity, cooking gas, water, house tax, etc.)
Telephone and Internet expenses
When the employees use a separate phone that is allotted by the company, the organization pays the bill for the same.
Legal Documentation
If the employee has paid an expense to complete any legal work for the company, he is eligible for reimbursement.
Medical Care Fees
If the employee has fallen sick or suffers from physical damage due to an unsafe work environment, they are entitled to get a reimbursement.
Unqualified Expenses
The expenses not mentioned in the Qualified Expenses section will be considered unqualified.
The employee is requested to take permission from the organization to pay for work-related expenses.
The following is a list of possible expenses that are unqualified to be reimbursed. The definition is not limited to the list.
The list mentioned below is of all the unqualified expenses that are to be reimbursed.
Personal Travelling Expenses
These are some travel related expenses that are personal and are incurred by the employee.
Extended Expenses
When the business trip gets extended for work-related reasons, there are some expenses to be made.
Personal Products
Any products bought like grooming products or cosmetics by the employee for personal use and have no relation with the work.
Traveling to and from work
Not all travel and work-related expenses are reimbursed by the employee. Employees can refer to the company’s local conveyance policy for more information.
Family Expenses
These are those expenses incurred by the employee’s family members during company trips or tours.
Guidelines
The employee should have the receipts of those expenses they want to reimburse. These are mentioned below:
- Name of the parties involved and present during the time of incurring such expense.
- The description and essence of the expense.
- The intent of the expense.
The application and the receipts and summary shall be submitted to the “Position of the Person” for approval. The applications with all the above-mentioned attachments shall be submitted within “Number” days from the day of incurring such expenses. In case of lunch/dinners with the clients,
- The employee shall inform the “Position of the Person” about such meetings before the actual meeting.
- The employee must not spend more than the amount mentioned by the “Position of the Person”.
Reimbursement of Expenses
The “Position of the Person” will review the reimbursement application. They will then decide on the approval of the same within “Number” days from receiving such an application. The “Position of the Person” must communicate the approval of the reimbursement application to the concerned employee in written form. The employee will receive reimbursement with the next payroll.
In some cases, the “Position of the Person” will specify in a written note whether reimbursement will be paid in cash or by cheque separately from the payroll. The company will provide reasons if the application for reimbursement is rejected. the company will provide the reasons.
If the employee spends an amount that exceeds the limits specified, the excess amount will not be reimbursed and is to be borne by the employee.
Exception
The HR will approve the policy if there are any changes.
Non-compliance and consequence
Any non-compliance with the policy will lead to financial or accounting irregularities. This will reflect in the audit. This negligence will strictly be viewed with the Employee Code of Conduct policy. Corrective actions will be taken accordingly.
Why do You Need an Expense Reimbursement Policy?
With the implementation of the policy, you can help your organization to maintain financial transparency and control costs. Some of the reasons why you need an expense reimbursement policy are mentioned above.
Financial Accountability
A well-structured policy has a culture of fiscal responsibility in the organization. There is a possibility that it can sometimes be the employer’s fault for not informing the employees about the expense policy. It can sometimes be the employees’ fault for not going through the policy carefully. Both these situations can lead to some form of trouble. These issues can be solved by taking some proactive measures by creating a practical expense policy.
Improved Expense Management
With the implementation of an expense reimbursement policy, it will allow the organization to analyze and optimize all the expenses. The finance team will get accurate information on each expense as the employees are informed about the policy. This approach will help in identifying patterns and unnecessary costs.
Compliance
When the expense reimbursement policy is carefully designed, it will lead to better legal and regulatory compliance. By specifying all the eligible expenses and necessary documents for submitting an expense claim, it will help the organization to stay away from any illegal problems.
Audit Preparation
The policy will not only help the company in ensuring that all the expenses are compliant but also help in financial audits. When the policy is organized, it streamlines the documentation process and allows smooth auditing. The policy also ensures that all expense claims are provided with proper receipts and relevant details.
Risk Mitigation
With incomplete expense management, the organization can reduce financial risks and fraud. There are real-life examples wherein organizations have come across financial issues due to internal fraud. A powerful employee expense reimbursement policy will act as an obstacle to fraudulent claims and prevent any financial data leakages.
Saved Time and Effort
Fixing compliance issues in the reimbursement process takes a lot of time. An assertive policy will lead to less confusion and uncertainty. This clarity speeds up the process, saving the employees and the finance team valuable time and effort.
Key Elements of Reimbursement Policy for Employees
To ensure fairness and clarity in the policy, it should outline various key elements that are eligible for reimbursement. This leads to less confusion and sets clear expectations for employees in seeking reimbursement.
Purpose
The purpose of the policy is to ensure transparency and accountability. It also mentions the business reasons behind the expenses made and to be claimed.
Scope
The scope is added to the policy to define which employees and types of expenses are included in the policy. This sets boundaries for what can be reimbursed and avoid any confusion.
Types of Expenses
Travel Expenses
This covers costs incurred during the business tours and trips. These include airfares and lodging. The policy should mention the maximum amount any company can reimburse for business trips.
Transportation Expenses
The policy also covers daily commuting and transportation expenses such as fuel and public transportation during business tours.
Office Supplies
There are expenses related to the purchase of daily office supplies like stationery. This also includes printer ink and other consumable products.
Business Meals and Entertainment Expenses
These expenses are related to client meetings and conferences conducted. Business-related entertainment activities can also be eligible for reimbursement.
Remote Work Expenses
After COVID-19, remote work arrangements have become popular. It covers expenses related to setting up a home office and internet costs.
Software Expenses
As the businesses are going more and more digital now, it makes using digital software solutions more important. As these costs are recurring expenses, an employee pays for such software out of their pockets.
Accommodation Expenses
During business trips, employees rent out a room at a hotel when they are traveling. These expenses are then reimbursed when receipts are submitted for the claim.
Best Practices for Creating Reimbursement Policy
Consider your organization’s values and objectives when developing an effective reimbursement policy for employees. This is not just about setting rules and guidelines but also about the company’s culture. Below are some best practices for designing and implementing the policy.
Alignment with Company Goals
The policy should align with the company’s goals and objectives. It should support strategic decision-making and provide consistency in the organization. The entire expense management system should be aligned, not just the policy. The policy should also align with other processes and business goals.
Use Clear and Concise Language
Try to create the policy in a clear and simple language. The policy should be straightforward and avoid uncertainty. Employees should easily understand the rules and guidelines for the reimbursement process. When the policy is hard to understand, it will lead to confusion and unnecessary issues. These could have been avoided easily. Also, include examples to understand the rule better.
Flexibility and Adaptability
Include flexibility and adaptability in your policy to showcase business scenarios and change accordingly. A flexible policy will help accommodate different situations, assisting organizations to remain updated over time. You can update the policy’s rules and regulations whenever needed and according to business expenses, leading to effective management of company expenses.
Clarity on Expense Categories
Define each category that is eligible for expense reimbursement. This specification will prevent any confusion and it reduces the chances of misinterpretation. Employees can choose a category when they are submitting expense claims. When a wrong category is selected, there are chances of reimbursement to be rejected. For this reason, it is important to mention all the kinds of expenses and it’s category for reimbursement.
Legal and Compliance Considerations
Your policy should comply with legal standards, protecting the company and employees from legal problems. Also, mention that there might be different legal problems when making personal expenses and then getting reimbursed. Some regions would have income tax implications. Make sure that there is a clear difference between income and reimbursed money.
Transparency
This policy is built on accountability and transparency. Communicate the objective of the policy to the employees and mention the approval processes and documents required for reimbursed. Mention the spending limits and why it is set along with the expense receipts needed for the approval process. This will clear out many doubts and reduce confusion.
Employee Training and Feedback
When the policy is all-in-one and well-structured, some employees might ignore it or not go through it properly. With this, employees will miss out on important details. It is the employer’s responsibility to provide training and educate employees about the rules in the policy.
A proper expense reimbursement policy will help any business gain financial control. This will enhance employee satisfaction as well. You can download our sample template for free to implement the policy effectively. To simplify the process, you can use factoHR’s Expense Management Software to automate expense tracking and reporting for the finance teams.
Disclaimer
This policy template is meant to provide general guidelines and should be used as a reference. It does not consider all relevant local, state, or federal laws. It is not a legal document. The author or factoHR will not assume any legal liability for using this policy.
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