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Expense Reimbursement Policy

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An expense reimbursement policy is known as a set of guidelines that defines an employee's expenses and the company's payment to the employee referring to that. An employee's claims must connect to the company's policies to enable reimbursement. This is because guidelines frame up effectively in an expense reimbursement policy. This policy is highly helpful. This is because it prevents misuse of funds and also lets employees decide on what to spend their money on. The reason is that the spending rate is connected to the amount of reimbursement. Therefore, these are some of the components that make up a good reimbursement policy.

Steps to Make an Expense Reimbursement Policy

Below are the steps that go into making an expense reimbursement policy:

  1. Give a Proper Definition. Define what is included and what is not included in your company's expense reimbursement policy. Elaborate on them per need. This will ensure a better understanding of the regulations among the employees.
  2. Elaborate on Limits. Elaborate on the limits an employee must have regarding the policy. This will help ensure they know their limits and act accordingly. Also, by following this, you will end discretionary expenses, too.
  3. Create an Expense Report for Employees. One of the most required steps in formulating a reimbursement policy is to consider each detail of your employee. This will help you create a well-formulated expense report.
  4. Automate Rectifications if Needed. Lastly, make rectifications in the policy as per the need. Be open to suggestions and implement them wherever required. Systems such as Optical Character Recognition(OCR) can be used.

Benefits of an Expense Reimbursement Policy

Though it may seem unneeded, expense Reimbursement Policies should truly be implemented. This is why you need to know why an expense reimbursement policy is important. This will help you implement the policy effectively. Not only does it benefit the employees, but it is also known to benefit the industry.

  • Saves Time: In some cases, employees pay for work out of pocket. Having an expense reimbursement helps keep track of the money the employee has spent. Thus, you save a lot of time, and employees get paid timely based on the amount of money they have spent.
  • Keeps a Check on Discretionary Expenses: Unnecessary expenses can occur anytime. Therefore, to prevent them, the expense reimbursement policy is considered to be the best. This policy saves the company money in the long run. It also maintains the trust of employees.
  • Effective Trust Building: Having peace around a firm is truly a blessing. An expense reimbursement policy solely brings this forward. This policy makes employees feel that they are getting their expenses reimbursed fairly, which leads to effective trust-building between the company and its employees.
  • Utilization of Tax Deductions: As a firm, you can also utilize the most out of tax deductions. As an expense reimbursement policy saves money, this policy puts forward mindful spending. Therefore, this leads you to make the most out of the policy and focus on tax deductions. In the United States of America, there is a deduction based on business ventures. You can consult a lawyer for tax returns.
  • No Fraud Occurs: Expense-related fraud is very common. Thus, adopting an expense reimbursement policy is going to be beneficial. There is an estimation of about 85% of employees who have committed some kind of expense-related fraud. Therefore, to put an end to overclaiming and fraud. You must put the expense reimbursement policy into action.

These are the benefits of an expense reimbursement policy. Other benefits include the employees knowing about the company's rules and regulations. This is because an expense reimbursement policy has its guidelines outlined carefully. The consequences for breaking the company's policies are also listed. This leads employees to take careful and mindful steps toward their expenditures.

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Expenses Covered in an Expense Reimbursement Policy

There is no federal law concerning the expenses covered by an Expense Reimbursement Policy. However, under the Fair Labor Standards Act, employers are required to reimburse employees. Work-related expenses bring the employee's pay below the federal minimum wage. This is why employees must be reimbursed fairly. This was reported by the Society for Human Resources Management (SHRM). Reimbursement policies differ from state to state. However, there is a list of the most basic items covered in an expense reimbursement policy. These are:

  • Business-related Travel: Food, lodging, and other related business expenses should be covered. This is to be done solely while on business-related travel. However, you must note that you must not hold the expenses for entertainment.
  • Utilizing Personal Vehicle: The use of a personal vehicle for business purposes can also be reimbursed. This will help you calculate fair expenses for the employee and ensure proper financial spending.
  • Telecommuting Expenses: Under several state laws, telecommuting expenses must be covered. You should duly note this and the rules in your state, as they may not be applicable in the state where you reside. In this case, phone and internet expenses are covered by the expense reimbursement policy.

Required Data in an Expense Reimbursement Policy Report

The different pertinent details required for this policy report are as follows:

  • Name: One must note the identity of the person. Ensure that employees’ names are spelled correctly. Thus, be aware of it.
  • Employee ID Number: You must input an employee ID Number. This will help you keep track of the employee's expenses. Online tracking systems are also available. The expenses will eventually add up in the expense report.
  • Date of Submission: The submission date for the expense report is required. This will keep the employee on track with time, and it will also help you keep track of the report as a whole.
  • Time of Reimbursement: The time of reimbursement and the date should also be added. This will give an employee additional information about the incoming money.
  • Business Purpose: Reports adding up to costs regarding business purposes must be added. This will help companies be on track with the companies they collaborate with. Also, you can keep track of the amount spent.
  • Other Documentation: Other documentation, such as receipts, invoices, etc., should be considered as well. This acts as a huge proof of expenses and stops fraud from happening.

You must keep these things in mind while formulating a report. Make sure you have added each one.

Key Terms for an Expense Reimbursement Policy

  • Appropriate Expense: An expense that is suitable only for various valid business purposes.
  • Allowable Expense: Reasonable expenses incurred for the benefit of a particular business and permitted to be reimbursed with the business's permission.
  • Original Receipt: This is a merchant receipt issued by the service provider to support and document the business transaction.
  • Reasonable: An ordinary expense that reflects a decision to incur it on behalf of the business.
  • Substantiation: Documentation to support an incurred business expense that includes the original receipt and documentation of business purpose.

Final Thoughts on an Expense Reimbursement Policy

These are some of the things you must keep in mind while formulating an expense reimbursement policy. Make sure to follow the guidelines for the state where you reside. Also, while formulating guidelines, explain each feature carefully and briefly. This will help employees keep track of the policy and stay in touch with the company.

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