What is expense reimbursement?

To define reimbursement, consider the money paid back to an employee who made an out-of-pocket expense to perform their assigned duties. Business expenses that get reimbursed are often travel-related, but not always.

Whether an office manager pays from a personal account to have board presentations printed or an account executive uses their travel credit card to book airfare, these are both types of expenses that can result in reimbursement. There are many categories for reimbursable business expenses.

Travel expenses

This is one of the most commonly reimbursed employee expenses because employers are allowed to take tax deductions for travel costs, such as:

• Plane tickets and tips for baggage carriers and necessary in-flight purchases
• Internet or phone charges incurred while on an airplane
• Taxis and tips
• Toll fees
• Accommodation costs when traveling overnight
• Gas and mileage
• Car washes and needed maintenance on vehicles used for work

Employee meals

When treating your hard-working team to a lunch trip, you can write that off as an employee expense. Some companies, such as those in the fast-food business, offer employee meals as a convenience to their crew. These expenses will be recorded within the accounting department and generally employees simply ring up their order to obtain the needed receipt. When non-food-related companies offer meal reimbursement to employees, this typically includes:

• The cost of meals
• Customer entertainment
• Tips for meals eaten

Uniforms and supplies

Depending on your line of work, your crew may need a variety of supplies to perform their jobs. While not every employer reimburses for work-related expenses, there are numerous reasons to do so.

Employees have greater job satisfaction when they don’t have to pay for work items out of pocket, and you can attract higher quality employees with benefits like expense reimbursement . Additionally, labor unions may have contracts with your company that require you to pay for hard hats, work boots and other gear. Some items that could be reimbursed as work expenses are:

• Tools
• Employee uniforms or work gear
• The cost of sending mail, faxing, photocopying and making business calls
• Dry cleaning expenses
• Childcare
• Educational costs
• Business cards and other advertising expenses

How expenses are reported

For reimbursement to employees, the process is pretty straightforward. In many companies, employees are expected to produce a log of expenses for a certain period called an expense report. They turn this over to Human Resources with verifiable evidence in the form of confirmations and receipts, and then they wait to get paid back.

However, for HR professionals, the process might take more effort. Once an expense report reaches HR, a department professional examines the report, verifies expenses and confirms they possess all the needed receipts.

Related: Creating HR Business Policies (With Templates and Samples)

Employee reimbursement helps companies manage costs by establishing policies around what can be reimbursed. Some companies use the per diem method to decide how much should be included in the policy. Per diem is a fixed amount that can be spent per day.

For some companies, the employees are entrusted with a credit card that can be charged to the company’s accounts. However, other companies require employees to pay from their own accounts and receive reimbursement electronically.

When expense reporting goes sideways

If there are any discrepancies in the report or if the correct receipts are not included, the Human Resources department must communicate with the employee to seek additional information. Some HR departments use expense reimbursement technology to facilitate this process and automate menial functions.

Technology helps employees keep track of expenses as well. Smartphone apps can upload pictures of receipts and automatically input expense information for your accounting team. When an expense cannot be verified, the HR department won’t initially approve it because it can’t be justified. Therefore, it’s important that all necessary evidence is presented, such as receipts. This makes it easy for Human Resources to verify and approve the reimbursement quickly.

Human Resources departments are often responsible for the process of confirming that employee expense reimbursement requests qualify for repayment. It’s good practice for HR departments to also have a policy in place regarding the overpayment of expenses to ensure that the company recovers any losses.

Are reimbursements taxable?

Employers can take certain tax breaks and benefits by reimbursing employees for work-related expenses. This is the main reason for the importance of record-keeping and receipt gathering. Unverifiable expenses cannot be used in tax reports, so they will likely be rejected.

How to manage employee reimbursements

There are a number of good practices for performing expense reimbursement tasks properly. This includes:

• Having an organized, integrative expense reporting system in place that’s easy to use for all employees
• Using expense reporting software to optimize your teams’ ability to control, measure and report on employee expenses
• Ensuring employees have secure payment methods if not using a cash system and are trained in proper record-keeping techniques
• Auditing expenses regularly and making sure to keep expenses and payroll separated
• Providing employee loyalty and rewards points as part of an expense program
• Having strict expense policies in place that are outlined in your employee handbooks
• Being willing to listen to employee reimbursement requests and meet in the middle

Create a clearly defined policy

A clearly defined policy is important for Human Resources operations. With rules in place for what can and cannot be approved, employees can easily determine what to submit for reimbursement. This allows managers to delegate and only get involved directly with employees when there are discrepancies.

Managers can create a culture of mutual respect by taking employee suggestions to heart, changing policies if they would improve the workplace. It’s good practice to keep a suggestion box around the office and encourage employees to offer policy feedback during meetings.

Make it simple for employees to request expense reimbursement

Expense report intake should be centralized, standardized and digitalized. This helps streamline accounting processes and saves space otherwise taken up by paper documents. In addition, expense software can help double-check requests for accuracy and ensure no request goes untouched.

For some companies, that may mean emailing expense reports to a specific mailbox, while others might invest in software that allows them to have additional features. Whatever technology you choose to implement, make sure that all employees who have expenses to report are able to use the software.

Automate where possible

One additional feature of expense software is the ability to automate HR tasks with regard to expenses. This helps limit the number of small tasks employees have to take on. For example, HR software can ensure expense reports are filled out correctly before they reach an HR professional for review. Expense recording software can also help by scheduling automated tasks such as report audits and documentation submissions.

Control, measure and report on expense reimbursement

It’s important to look at expenses as a metric upon which you can review trends and establish goals. You can do this by issuing and reviewing reports on expense reimbursement over a specific time period and coming up with strategies to enable better results. A skilled accounting and HR team can determine the best metrics to measure your policies’ success.

Expense reimbursement FAQs

Who is in charge of reimbursing travel expenses?

The Human Resources department is usually responsible for creating a form that will be sent to the accounts department when travel expenses are incurred. This is done after the expense report has been verified and approved.

How long does it take for the reimbursement process to take place?

The time depends on the company’s policies. These policies are usually stated so that the employee is aware of when they can expect to be paid. The two factors that impact the time it takes are how long it takes the HR and accounting departments to reconcile and release payment, and how long it takes for the bank to get funds to the employee’s account.

Do remote workers qualify for expense reimbursement?

Companies that have a remote workforce often supply the technology they need. This can often mean providing them with quality, reliable internet service, which would need to be reported as an employee expense in many cases. This may not be the case if the employer pays the utility bill directly. Remote workers may qualify for other expense reimbursements, but this usually depends on the company’s policy. Many states do have remote worker reimbursement laws, including California, New York, Illinois, Iowa and Montana.

Are companies legally required to reimburse employees for work-related expenses?

Not always, since there are no federal requirements for reimbursement to employees that incur on-the-job expenses unless that expense would drop their take-home pay to below federal minimum wage. Companies often choose to reimburse employees in order to claim tax benefits.