Our guide to employee expense reimbursement

Quick insights

• In many businesses, it’s common practice for employees to initially cover the cost of expenses and be reimbursed later.
• Employees may fill out expense reports, or itemized lists of expenses and related details, for these purchases.
• Creating an expense reimbursement policy can help ensure employees are reimbursed promptly.

There are many situations where an employee may need to make a purchase on behalf of their company. For example, they may need to pay for a client dinner or replenish office supplies. Because of instances like these, it may be necessary for businesses to have a plan for reimbursing employee expenses. Many businesses keep track of reimbursements via expense reports. There are many software options out there that can help automate this process as a business expands.

Below, we detail some ins and outs of employee expense reimbursement. Plus, we’ll share why it might be helpful to create a formal company policy that tracks and manages these reimbursements.

Understanding expense reimbursements

There are many cases where it may be more convenient for an employee to cover the upfront cost of something. The employee may need to acquire or pay for something quickly, so it could be more practical for them to submit an expense report for reimbursement later.

If a business opts for an employee reimbursement policy over issuing individual employee credit cards, it can be beneficial to come up with a formal reimbursement policy that could include the below:

• Acceptable categories for reimbursement
• Spending limits for specific categories
• Guidelines for submitting expense reports

Implementing a company reimbursement policy may help ensure employees are reimbursed promptly. Reimbursing employees in a timely manner may also help businesses understand their current cash flow.

If a company doesn’t have a set reimbursement schedule, they may incorrectly assume they have more available funds than they actually do. This could result in decisions that negatively affect budgets or cash flow.

Examples of common reimbursable expenses

It’s up to individual businesses to decide what kinds of expenses are reimbursable for employees. For example, businesses whose employees travel frequently may reimburse additional travel-related expense categories.

Here are a few common categories where businesses may prefer employees to cover the initial cost for convenience purposes:

• Gas mileage
• Airfare
• Rental cars
• Lodging
• Meals and entertainment
• Client dinners and events
• Phone and internet
• Office supplies
• Software subscriptions
• Continuing education

Recording reimbursable expenses

Creating expense reports is a common way to record reimbursable expenses. Expense reports are itemized lists of expenses that include the following details for each purchase:

• Date
• Brief description
• Expense category
• Subtotal

Expense reports also often highlight subtotals for different business categories and a total of all included expenses. Using expense management software can help automate business categorization, subtotals, accounts payable and more.

However, software isn’t always necessary for small businesses that don’t have many expenses. Some business owners may choose to use simple spreadsheets to manually categorize expenses and add subtotals.

Regardless of which method a business chooses, the next step is sending the expense report to a designated employee for review and approval. Once an expense report is approved by the finance stakeholder, the employee who incurred the expenses may be eligible for reimbursement.

Creating an expense reimbursement policy

Creating a company expense reimbursement policy can be a helpful way to ensure all employees understand reimbursable categories and spending limits. Here are a few things to consider when outlining a policy:

• Acceptable expenses: Be specific about what types of expenses are and aren’t eligible for reimbursement. For example, a business may choose to reimburse rental car costs and meals during travel. However, they may not choose to reimburse costs incurred from rental car upgrades or alcohol.
• Per diems: Businesses can choose to implement per diems if they don’t wish to set spending limits on specific categories. A per diem is a set amount of money employees can use on allowed expense categories, typically during business-related travel. Businesses may want to consider setting per diems based on travel locations, as some areas tend to be more expensive than others.
• Approvals: Not all small businesses have dedicated finance departments, so it can be important to designate people to review and approve expense reports. This could be an employee’s direct manager and/or an employee in a finance-related role.
• Due dates: If a business requires employees to submit expense reports for reimbursement, it can also be useful to set due dates. For example, an employee may need to submit an expense report by the 15th of the month to be reimbursed by the end of the month.
• Software: As a small business grows, it may become increasingly difficult to manage the creation and approval of expense reports. If this is the case, it may be wise for business owners to consider expense management software, which can help automate parts of the process. Note that adding more employee “seats” to the software may incur additional costs.

How to use business credit cards for expense management

One way to potentially simplify the expense reimbursement process is to issue employee credit cards. These cards are directly linked to a primary business card account, so employees won’t need to use their personal credit cards for purchases. Because of this, there is no need for reimbursement.

Some business credit cards also allow business owners to set spending limits for individual employees. This may help streamline expense management policies.

Even small business owners, freelancers and independent contractors could be eligible to apply for a business credit card. Explore the Chase Ink suite of business credit cards to see if one could be the right choice for you.

In summary

For many businesses, it could make sense for employees to pay upfront for certain costs and receive reimbursements later. In this case, it can be helpful to create company policies that ensure employees are properly reimbursed in a timely manner.

Expense management software may help expedite the process of creating and submitting expense reports. Using business credit cards may also remove certain steps from the reimbursement process.