Expenses Reimbursement Best Practices

If you run a company with employees who need to travel for work, you’ll need to get to grips with managing expenses.

This means establishing a system for expense reporting, as well as reimbursing employees for their out-of-pocket expenses on things like fuel, train tickets, meals and office supplies.

In this helpful guide, we’ll be taking a look at expense reimbursement best practices. This includes ways to set up and improve your company’s expense reimbursement policy and processes.

You could even skip reimbursement altogether, by getting Wise Business expense cards for your team. These offer full control on international employee spending in multiple currencies, and even pay cashback on purchases.

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What is expense reimbursement?

Expense reimbursement is the process where a business pays back employees for work-related expenses they’ve paid out of their own money.

For example, one of your team may top up a company car with fuel, book a hotel stay for an upcoming conference or take an important client out to lunch.

If they pay for the purchase and it’s covered under your company’s expense policy, they’re eligible for reimbursement. They’ll need to submit an expense report and receipts at the end of the month, which will then be approved (unless there are errors or discrepancies) and the expenses reimbursed to their personal bank account.

Reimbursable expenses types

Reimbursable expenses tend to be any work-related purchase an employee pays out of their own money.

There are some exceptions though, such as costs associated with standard working arrangements. For example, the cost of travel to and from an employee’s normal office location, lunch expenses or the price of a morning coffee in the work canteen. You might also have company or project-wide expenses limits in place, where any individual or collective purchases over these limits won’t be reimbursed.

But otherwise, reimbursable expenses usually fall into one of the following categories:

• Travel expenses, including fuel and mileage
• Meal and entertainment expenses
• Office supplies and equipment
• Professional services
• Software or professional subscriptions
• Telecommunications
• Training and education
• Marketing and advertising
• Maintenance and repairs
• Miscellaneous expenses.

Travel on its own can rack up a pile of expenses reports. If your employees regularly travel to work, it could be worth getting them their own expenses cards.

Wise Business expense cards are particularly good for international travel and spending, letting your team pay in multiple currencies with the mid-market exchange rate, while you retain full control of spending limits. Best of all, there’s no need for reimbursements.

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Expense reimbursement process

Here’s how the expense reimbursement process works in a typical business:¹

1. The employee incurs a work-related expense - such as buying train tickets, ordering leaflets from a print shop or filling a company car with fuel. They’ll need to make sure they keep their receipt for the purchase.
2. At the end of the reporting period (usually the end of the month), the employee generates an expense report. This itemises all purchases, including the vendor/retailer, amount and expense category it falls under.
3. This report is submitted to senior management or the finance department for review, along with receipts/invoices for the relevant purchases.
4. The report is approved (or rejected if there are errors or discrepancies)
5. The business reimburses the employee, paying out the stipulated sum to the employee’s bank account.

To avoid the risk of human error and to save time, it’s now standard practice for companies to use automation tools and software to manage expense reporting and reimbursement.

This enables the process of data entry, approvals and payments to be automated. It also provides useful services to employees such as digital receipt capture via mobile apps.

Expense reimbursement policy

All companies with employees need an expense reimbursement policy in place. It’s essential for clearly communicating the following:

• What can and can’t be reimbursed
• Timescales for reimbursement
• The process for submitting expense reports and receipts
• Spending limits.

Your policy should be clearly worded and communicated to all employees. It doesn’t need to be a lengthy document, as long as it covers all of the essentials.

With the right policy and procedures in place, you can improve the efficiency of the whole process. This ensures employees get reimbursed more quickly, and it also means less paperwork for the finance team. A strong policy can also boost transparency and trust, so that employees can travel and make other business expenses in confidence.

Employee expense reimbursement law in the UK

As an employer, certain UK laws may affect your business with regards to employee expense reimbursement.

To start with, there’s no law that stipulates that you have to provide reimbursement to employees for mileage or travel.² However, it’s good practice to do so - especially if you want to attract and retain staff.

The rules you do need to know about as an employer relate to your tax responsibilities. Depending on the type of expense, you may have obligations with regards to tax, National Insurance and reporting reimbursements to HMRC.

You may choose to report expenses reimbursements through a payrolling benefits arrangement, where expenses are paid through payroll and reported to HMRC as part of your FPS. Alternatively, you can do it through submission of an annual P11D form.²

FAQs - Expense reimbursement

How to reimburse employees for expenses?

There are two common ways employees are reimbursed for business-related expenses.

The first is direct bank transfer upon submission of an expenses report, while the second is payment through the payroll system. This is where the employee receives reimbursement along with their salary, and the reimbursement is detailed on their payslip.

What is the difference between payment and reimbursement?

Reimbursement is a term specifically used in relation to ‘paying back’, such as to repay an employee for work-related expenses paid out of their own pocket. A payment is different, as it usually refers to the paying of a salary or the purchase of goods or services.

How do you treat expense reimbursement in accounting?

Each company may have slightly different accounting and bookkeeping processes. But how it generally works is that once an expense report is approved, the accounting team will record the expense. They’ll assign an expense category and raise a payable for the employee. When the reimbursement is paid, this payable is cleared.³

There are also accounting tools and software which can streamline and automate much of this process. It’s very common these days for businesses to make use of these solutions, as it speeds up the process, reduces the risk of human error and saves time on manual tasks such as data entry.

How to create an effective expense reimbursement policy?

The smooth running of expense management and reimbursement within your business all hinges on a clear, concise and comprehensive policy.

Here are some tips and best practices to help you create an effective expense reimbursement policy:

• Manage employee expectations with clear (and achievable) timeframes for submitting expense reports and when they can expect to receive payment.
• Include a comprehensive list of what and cannot be claimed for - draw on past data relating to expenses claims to help you generate this list.
• Set clear spending and fair use limits.
• Make it as simple as possible for employees to submit receipts and request expense reimbursement. You might want to consider automation tools and expense management apps which offer digital receipt capture on the move.
• Develop a plan for communicating your policy, including it in induction procedures along with regular email reminders.

Wise Business expense cards: international expenses made easy

If your business operates internationally and your employees are regularly spending time abroad for work, Wise Business expense cards could be the ideal solution.

These contactless international debit cards work for spending and cash withdrawals in 150+ countries worldwide, with no foreign transaction fees or subscription fees.

Whenever someone spends or withdraws cash overseas, the currency is converted at the mid-market exchange rate, with just a small conversion fee to pay.

There’s also 0.5% cashback paid on all eligible spending.

Once you have a Wise Business account, you can order unlimited expense cards for just a one-off fee of £3 a card. You can add employees to your account, with controlled access - and you get full control over spending their limits.

What’s more, it’s easy to integrate Wise with your accounting tools, and your accountant can view team spending for smarter collaboration.

Get started with Wise Business 🚀

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After reading this, you should have a better idea of how to manage expense reimbursement.

We’ve looked at how to create a rock-solid policy and communicate it to your employees, as well as the types of expenses which can be claimed for. Plus, a few details on relevant employee expense reimbursement law you need to know about as a business.

You should now be able to make a start on setting up a system that works for your company and its employees.

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Sources used:

1. Ramp - What is an expense report?
2. PayFit - A Guide to Expense Reimbursement For Employers
3. Ramp - What are reimbursable expenses?

Sources last checked on date: 10-Sep-2024