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If companies don’t have a solid system for employee expense reimbursement, they risk losing their employees’ trust.
According to a report from Conferma, U.S. employees lend their employers $1.6 billion each month through expenses.
Nobody likes delays in getting paid. In case of employee expense reimbursement, delays can only hurt employee morale and create an atmosphere of mistrust. A clear reimbursement plan is not just a good-to-have, but a must-have to keep everyone happy. Employees need to know how to submit their expenses and when they will get their money back.
In this blog, we look at what is employee expense reimbursement, what challenges companies face in managing it and the best practices for reimbursing employee expenses. These tips can help you set up a process that works well for both your business and your team.
What is Employee Expense Reimbursement?
Oftentimes, employees incur expenses that are related to their job roles. For instance, sales staff is frequently required to travel for work. Naturally, they will have expenses for accommodation, transportation and food. There may be some others who have purchased items like computer equipment or a desk to support their remote work.
When people spend their own money on business-related expenses, they expect the company to reimburse them. Most companies have policies in place for employee expense reimbursement and will refund the employee once they provide clear documentation of the costs.
Types of Employee Expense Reimbursement
Employee expense reimbursements cover a range of categories, including:
- Travel: Costs related to travel for official purposes which could be for attending meetings, conferences or other sales/marketing activities.
- Lodging: Expenses for staying in a location for business meetings or other work-related activities.
- Food-related Expenses: Costs incurred on meals during business hours or on business trips.
- Other Expenses: Various other costs, such as internet charges, phone bills, office supplies or gifts for clients.
Common Challenges in Employee Expense Reimbursement
Many companies find it hard to manage employee expense reimbursement because of underlying issues like:
1. Unclear Rules
If the reimbursement policy isn’t specific or lacks details, it can lead to misunderstandings among employees. The ambiguity may discourage employees from seeking reimbursement. It could also negatively impact their trust in the employee expense reimbursement process.
2. Long Process
The reimbursement process often involves multiple documents, authorizations, and approvals, making it very time-consuming. This could result in employees hesitating from submitting their expenses promptly and efficiently.
3. No Documentation
Not all expenses may come with a receipt. This means many people may find it hard to submit proof for the reimbursement. Without a mechanism to address missing or unavailable receipts, employees may feel discouraged from claiming their expenses.
5 Best Practices for Managing Employee Expense Reimbursements
Having a strong employee expense reimbursement is table stakes if businesses want to make life easy for employees and retain their trust.
There needs to be a simple, straightforward and well-documented process to ensure employees receive reimbursements promptly. This process should also be easy for everyone to understand and follow.
Here are some best practices that business owners/HR professionals can follow to accurately track employee expense reimbursement:
1. Have Clear Reimbursement Policies
First, figure out what kind of expenses your employees can get reimbursed for. Basically, anything they pay out of pocket to help your business should qualify.
Next, make sure your team knows exactly what expenses they can submit under employee expense reimbursement and explain how the process works. They need to retain all their receipts and submit the copies for records. Specify when they can expect to receive a reimbursement and set a deadline for submitting reimbursement requests.
Also, work closely with your accounts/finance team to make sure every receipt and reimbursement is logged correctly and nothing is missed.
2. Automate Employee Expense Reimbursement Process
One of the most effective ways of pragmatically managing this process is by automating it. Many companies leverage cloud-based expense management software and tools for this. These systems are great for documentation purposes, and they allow you to easily retrieve copies of receipts and track submission dates. Additionally, they enable you to monitor when reimbursements are issued to employees.
Online employee expense reimbursement systems also offer a level of transparency that manual methods lack. Most include an approval feature which lets the managers approve or deny reimbursement requests efficiently.
3. Set Up a Tracking System
Add employee expenses into your financial budget to monitor if they align with your expectations. This proactive approach allows you to adjust expense policies as needed.
If expenses exceed budgeted amounts, then you need to investigate promptly to understand the reasons. You might need to tighten up the approval process and make sure managers keep a close watch on department spending. This can help prevent unnecessary costs that impact your company’s cash flow.
4. Communicate with Employees
Make sure every employee understands how the employee expense reimbursement process works. Document your policy to ensure consistency and provide a reference for any inquiries from employees or managers. If your company uses an intranet, publish the expense policy so that everyone can access it.
Implementing an integrated reimbursement system improves communication between managers and employees. Employees can monitor the status of their reimbursement requests and get to know about approvals and anticipated payment dates. This transparency can reduce unnecessary tensions among team members.
5. Conduct Regular Audits
Despite having a solid employee expense reimbursement process in place, conducting periodic audits is table-stakes. Pull a sample of expenses every few months and verify that they are backed by the necessary supporting documentation. Cross-check receipts against the amount reimbursed to identify any discrepancies.
Regular audits help maintain financial accuracy and prepare you for year-end financial closings and annual tax filings effectively.
Parting Thoughts
HR technology, particularly platforms like Akrivia HCM, revolutionize the entire employee expense reimbursement process.
Instead of handling an overwhelming amount of paperwork, employees can effortlessly upload their expense receipts directly into the system. This streamlines the process, saves time, and minimizes the risk of losing critical documents. The expense management software automates processes according to company policies and ensures faster processing of reimbursements. It maintains a digital trail of all transactions and simplifies auditing procedures. Do you use an expense management software? Share your experience with us in the comments below.
If you don’t, you can Request a demo to know more.
