Business expense reimbursement is made easy with Expensify
Ever had an employee pick up coffee, office supplies, or lunch for the team, only to be left wondering how to properly reimburse those little expenses — or how those reimbursements actually affect your business? You’re not alone.
Managing employee expense reimbursements can sometimes feel like juggling with too many balls in the air. It's about more than just paying back employees; it's about making the process smooth and hassle-free for everyone involved.
In this guide, we’ll walk you through everything you need to know about employee expense reimbursement, so no balls are dropped and everyone is paid back on time.
What is an expense reimbursement?
An expense reimbursement is the process of compensating employees for out-of-pocket expenses they incur for business-related activities. Think of it as the company's way of saying, "Thanks for covering this, we've got you back." This could range from travel costs to client lunches or even that emergency pack of printer paper.
Timely, efficient reimbursements are the key to maintaining trust and fairness in the workplace. At its core, it's about recognizing that when employees spend their own money for company benefits, they deserve a no-fuss, quick way to get paid back.
Types of expenses that can be reimbursed
When it comes to employee expense reimbursement, not all costs are created equal. Businesses typically have specific types of expenses they're willing to cover. Here’s a glance at some common business expense categories:
Travel costs: Think airfare, hotel stays, and mileage.
Meals and entertainment: Business lunches, team dinners, or client happy hours.
Office supplies: From stationery to software subscriptions.
Professional development: Course fees or conference tickets.
Home office expenses: For those remote work setups — think computers, monitors, printers, or other equipment.
Reimbursement and taxes
Small business taxes are complicated. Navigating the tax implications of expense payments can be tricky, and both employers and employees need to understand the tax rules that apply.
Generally, reimbursements can fall into three categories: nonaccountable, accountable, and per diem. Each of these has specific tax treatments and requirements. Getting this right is essential to ensure compliance with tax laws and to avoid unnecessary tax burdens.
Let’s dive deeper into each type below.
Nonaccountable
A nonaccountable plan is a relaxed way to handle expense reporting. Under this plan, employees receive a set amount for expenses, and they aren't required to provide detailed reports or return any excess amount. Sounds straightforward, right?
However, it's crucial to know that reimbursements under a nonaccountable plan are treated as taxable income. This means they're subject to income tax and payroll taxes, both for employers and employees.
While this plan offers simplicity, it lacks the tax advantages of more structured plans. Employers need to report these reimbursements as part of the employee's wages, which can increase the overall tax burden for both you and your employees.
Accountable
When it comes to business expense reimbursement, accountable plans are preferred by many businesses because they’re not subject to taxes. Here’s what makes a reimbursement plan "accountable" in the eyes of tax authorities:
Proof of business connection: Expenses reimbursed under this plan must be business-related.
Adequate accounting: Employees must provide the employer with receipts or other documentation, detailing the amount, time, place, and business purpose of the expense.
Returning excess amounts: Any advance or allowance over the actual incurred expense must be returned to the employer.
Choosing an accountable plan is great for staying on the right side of tax laws and keeping your business's financials clear and under control. Plus, these kinds of reimbursements won't be counted as taxable income for your employees, and your business can write them off on taxes. It's a practical choice for both you and your team.
Per diem
Per diem, a Latin phrase meaning "for each day," is a straightforward approach to handling business travel expenses. Instead of tracking every penny spent, companies allot a fixed daily amount to cover the costs. This method simplifies expense reporting and gives employees a clear budget for their trip.
As far as taxes are concerned, any amount spent that exceeds the per diem rates is subject to taxes.
Many companies opt for per diems during business travel because:
It's hassle-free: No need to keep every receipt, as the per diem covers all expected daily expenses.
It makes budgeting predictable: The company knows exactly how much will be spent per employee each day, aiding in financial planning.
It’s fair: All traveling employees get the same daily rate, ensuring equity in expense coverage.
With expense management automation, per diem management becomes even smoother. This software can be set up to automatically allocate daily allowances, streamlining the process and ensuring consistency in applying the policy.
How to reimburse expenses in 4 steps
Processing and paying reimbursement expenses doesn't have to be a complex task. By breaking it down into manageable steps and using our expense report templates you can ensure a smooth and efficient workflow.
1. Create expense report guidelines
Setting a clear expense reimbursement policy is a must for establishing guidelines for what can be claimed and how, so employees know what expenses are reimbursable.
These guidelines should also outline the process for submitting expense reimbursement requests, and let employees know how they can expect to be paid back. This keeps everyone on the same page and prevents misunderstandings.
2. Employee submits an expense report
When an employee incurs a business expense, they'll need to submit an expense report to get paid back. This report should detail the expense and include any necessary documentation, such as receipts or invoices.
Clear guidelines make it easier for employees to understand what to include in their submissions, ensuring a smooth process. Also, don’t forget about expense report automation software — which can streamline the reimbursement process for everyone, while limiting the risk of manual errors.
3. Review submission and check for accuracy
After submission, the expense report needs to be reviewed for accuracy and compliance with company policies. Take your time here! This step is crucial to double-check that all claims are legitimate and within the set guidelines.
And don’t forget, expense management automation speeds up this step, too.
4. Reimburse employee and track payment
Once the report is approved, the next step is to reimburse the employee. There are various reimbursement methods to consider, each with its pros and cons.
You can choose to reimburse through payroll, ensuring consistency but potentially requiring more administrative work.
You can opt for a cash reimbursement, which might be quicker and simpler, but it lacks a clear digital trail.
Regardless of the method chosen, reimbursing as soon as possible is crucial to maintain employee trust and morale. Tracking these payments is also important for maintaining accurate financial records!
Revolutionize reimbursements with Expensify
To stay compliant with taxes and keep your business up and running, one thing is certain: you need to establish a clear and efficient employee expense reimbursement process. Fortunately, Expensify makes that a whole lot easier.
With Expensify, managing reimbursements is a breeze, giving you more time to focus on growing your business. Ready to transform the way you handle expenses? Sign up for Expensify today and experience the ease and efficiency of automated reimbursements.
