There’s a commonly told urban legend having to do with an employee who gets an expense report bounced due to a charge that is not allowed. The story usually ends with the comment, “find the hat”. The fact is, it is not unusual for an employee to “bury” an expense because they are not sure if it is covered under expenses – or because they feel they were entitled to a little something extra.
In most cases the employee wants to do the right thing but, for a variety of reasons – potentially including the lack of a fair and comprehensive travel and expense (T&E) policy that provides guidance – the employee simply does not know what the right thing is. A solid and unambiguous policy can prevent these types of situations and help the employee make a good decision regarding what to do and, ultimately, a good decision about the company’s money.
The development and implementation of a T&E policy can significantly reduce costs for a business that requires its employees to travel. In fact, a sound company expense report policy, accompanied by some type of automated expense reporting system, has the potential to cut costs, improve administrative efficiency and better the overall experience for the employee.
Writing a corporate T&E policy, or even just updating one, requires an end-to-end process in order for it to be totally unambiguous, and the policy must be adhered to and applied consistently to all employees. Further, the policy must satisfy three rules in order to be exempt from payroll and income taxes: the expenses reimbursed must have a business connection; the expenses must be accounted for in a reasonable amount of time; and any overage of reimbursement must be returned to ensure exemption from income tax.
A comprehensive policy should usually spell out, at a minimum, the following four categories:
In black and white with no room for misinterpretation, these guidelines list exactly what is allowed and what is not and under what conditions. The explanations will help the employee when they must make decisions on which hotel to stay at, in-room movies, meal expenses and so on. Airline travel over six hours for example, may be eligible for a business class ticket rather than economy class. This kind of information needs to be clearly explained in the expenses guideline so that employees are aware.
Travel and accompanying expenses are usually pre-planned and so there is ample time to submit a request and have it approved prior to the actual travel date. To help encourage timely requests and to help control spending before it happens, the policy should include timeframes for advance approvals. As well, by submitting a request for pre-approved travel, the follow up expense reporting is often made easier. There are however times when travel or expenses are sudden and the guidelines should cover this situation as well.
Expense Reporting / Timelines
As mentioned earlier, expense reports must be submitted and/or accounted for in a reasonable amount of time. Rules pertaining to what is considered a reasonable amount of time may vary according to the type of business, state or federal regulations that may apply and any grace periods that can be granted. Rules should include occasions when expense reports are denied due to late filing or incomplete submissions. Timelines should also apply to employees who are responsible for processing the expenses. In any event, compliance must be adhered to and this is best accomplished when everyone knows the rules.
Disciplinary measures must be included in the guidelines so that employees know there are consequences for not following the rules. Minor infractions such as padding tipping expenses or adding non-existing guests to a business meal in order to cover a higher check add up to serious dollars over a period of time.
While it is true that companies must spend money to make money, having a comprehensive T&E policy, and making it easy for the employee to submit and be reimbursed for their expenses, helps to ensure that money spent on T&E is a sound investment.