In cases such as client meetings and office supplies runs, an employee may end up using their own personal cash and credit accounts to cover the costs generated as a result of conducting business activities as representative for their organization.
These payments made by employees are considered eligible for expense reimbursements. Such monetary returns are repaid to employees to compensate for personal expenses they incurred in their performance of their job duties on behalf of their employer, and that is external to the calculation of their regular pay.
The end goal of expense reimbursement is to ensure that work-associated transactions are administered and settled with efficiency, accuracy, and accountability to the satisfaction of both the employer and the employee.
Here’s a guide to the best practices for processing employee expense reimbursements for business-related costs.
Related reading: 10 Powerful Tips and Tricks Every Payroll Pro Should Know
1. Form a policy for the expense reimbursement process
Determine an easy-to-follow and clearly explained expense reimbursement policy to distribute and communicate internally to your employees. The important details that should be addressed and defined include the expenses eligible for reimbursement, the guidelines for how claims should be submitted, and the timeframe for the issuing of payments.
If employees need pre-approval on purchases made on behalf of the organization beforehand, make that explicitly known. It’s in both parties best interest to be as detailed as possible in your policy in order to avoid a situation in which an employee, using their own discretion to decide what is an allowable expense, has their reimbursement claim denied once it’s discovered the expense is not covered within the scope of the company policy.
As well, within your policy, provide a point of contact should employees have any questions or concerns.
2. Determine what expenses employees can claim
Set clear rules in place on what purchases qualify as valid expense claims. Eligible reimbursements typically include travel and accommodation, office supplies, cellular phone charges, and costs for entertaining clients. Employee perks, such as transit passes and fitness memberships, may be offered to employees as company benefits; if so, it is advisable to communicate how much is covered by the employer, from a partial subsidy to a full reimbursement.
3. Create a system for collecting employee expense claims
An expense reimbursement claim report should be filed and completed by the employee and submitted to their HR department for approval after the costs have been incurred. As per your company’s policy guidelines, communicate what information is needed when submitting expense claims and reports. Information that should be reported includes the total amount of the purchase, the date of the purchase, the name of the seller/supplier, and a description of the goods and services bought.
Additionally, it’s crucial for employees to provide their records supporting the claim to the company for review and approval. Records that are permissible include receipts, invoices, credit card statements, ticket stubs, and vehicle logs. To keep things organized, establish a centralized system for submitting expenses, including the processes for uploading and sending in their proof of payment, whether in physical form or by scanning a copy of their bills.
Keep the process as simple, streamlined, and digitized as possible to reduce the amount of time your employees spend on sending in their expense submissions.
4. Verify the legitimacy of expenses
Set and communicate deadlines for expense report submissions, such as submitting claims at least a week before the forthcoming pay date in order for the employee to receive approval for their claims and see their reimbursement in that pay cycle. Give yourself enough time to review the expense reports and make sure they comply with the policy guidelines. This way, you can consult with the employee if there is any missing or incomplete documentation, expenses outside of the policy, and other discrepancies.
5. Pay reimbursements within a specified timeframe
Let employees know when they will see the payment from the company. Institute a clear and transparent process communicating the expected schedule for expense reimbursement. Communicate how they will receive the payment — whether it’s via direct deposit or cheque — as well as how they will see recorded confirmation of the payment made (such as a statement on their paycheque) for their reference. An online payroll solution can assist you with completing this step with ease.
When it comes to paying employees, transparency in the process is important to keep things running smoothly. You can easily prevent frustration caused by late payments by processing reimbursements timely and reliably. If your staff is paying out of their own pockets and are not paid back sooner rather than later, it can cause unnecessary ill feelings towards your company. You can have a positive effect on the employee experience through how you handle reimbursements — doing it well reflects back on you as a respectable and considerate employer that cares about their people.
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