You have to spend money to make money. There’s no doubt about it. But companies also have to keep costs under control. Finance teams are left with a tough balancing act between funding the spend that’s needed and reining in the rest.
A company expense policy helps you walk that line in a fair and transparent way by setting out the details of what the company will and won't pay for. This post shows you how.
What is a company expense policy?
A company expense policy is a set of guidelines that a business uses to manage expenses and reimbursements for its employees. These guidelines typically cover the types of expenses that are reimbursable, how much employees can spend, and the process for submitting expense reports. A good expense management policy ensures that all business expenses are necessary, reasonable, and in compliance with industry standards.
Why do you need an employee spending policy?
An employee expense policy offers clear guidelines for employees so they know what to expect when it comes to work-related expenses and reimbursement. By detailing the kinds of expenses that are reimbursable, how they should be reported, and when, an employee spending policy protects the company against unreasonable claims while ensuring fair reimbursement for the staff.
What to include in an expense policy
A successful expense policy should provide clear guidelines on acceptable expenses and the reimbursement process—with clear examples for travel, meals, accommodation, and other work-related expenses. The policy should also include a well-defined workflow for approval and reimbursement to minimize potential confusion and company losses.
1. Employee expense categories
Your company's expense policy should include a list of employee expense categories. Within these categories, some expenses might be allowable while others aren't, but anything that falls outside of these categories is clearly not reimbursable.
2. Allowable expenses and limits
In the US, the IRS publishes guidelines and rulings about "allowable expenses"—expenses that are considered ordinary and necessary for a business to function. These expenses are tax-deductible. Your policy should follow IRS guidelines to make sure the expenses you're permitting for your employees are in compliance with these regulations.
However, you should also set forth strict budget limits. Business travel to industry-related conferences may be tax-deductible, but your policy should still set reasonable limits on the travel expenses you're willing to pay for and under what circumstances. A good policy lets employees know what they can spend—and what they should (or shouldn't) expect to be reimbursed for when paying out of pocket.
Traditionally, budget limits included in an expense policy were enforced manually, often after the money had been already spent and receipts were delivered at the end of the month. Today, companies use expense management solutions to set budgets ahead of time and enforce them automatically through the use of corporate cards tied to spend management software.
3. Non-reimbursable expenses
Non-reimbursable expenses are the costs that your company won't cover or reimburse to employees. These can include personal medical expenses, fines for traffic violations, unnecessary room service expenses during business trips, and other miscellaneous expenses that are personal in nature. Making sure that non-reimbursable expenses are clearly defined helps avoid misunderstandings and frustration for both employees and your finance team.
4. Payment methods for expenses
Your expense management process should also lay out the payment methods employees are allowed to use for company expenses. This might include ACH payments for certain vendors, corporate cards for office expenses, or even international wires when needed. If you decide to let employees use their own personal cards for travel or other expenses, you'll need a process for approving and reimbursing those out-of-pocket expenses.
5. A process for allowable reimbursements
Let's say an employee books a hotel and rents a car for an offsite event using their own personal credit card. Assuming those are permitted expenses under your policy, what process should the employee use to submit expenses for reimbursement? Your expense policy should walk through the procedure step by step so employees know how it works and what to expect.
6. Approval policies
Whether expenses are paid for by corporate card or out of pocket, what's the approval process for making sure those expenses are legitimate? Who reviews them and when? At what point does spending require additional scrutiny such as approval at a higher level or by more than one person? These approval policies should be detailed in your employee expense company policy as well as specified in your spend management software so they can be applied automatically.
7. Expense management policy guidelines and examples
No matter how clear your expense policy is, many circumstances won't be covered directly. Be sure your policy includes general guidelines as well as specific examples that help define the difference between expenses that are and are not reimbursable. It should also give employees a clear and easy way to ask questions and get certain expenses pre-approved.
Another way to remove the guesswork from your expense policy guidelines is to combine them with corporate cards that are tied directly to expense management software. By limiting permitted categories in the software and setting monthly limits, companies can ensure that employees are spending within their permitted guidelines—and employees don’t have to worry about pre-approvals or reimbursements.
How to create an effective company expense policy
To craft an effective expense policy, you'll need to define clear guidelines for business-related expenses, including the types of expenses that can be claimed, budget limits, and the process for reimbursements. Ensuring an effective, clear, and fair expense policy requires careful thought and planning. The 6 expense policy best practices below can help.
Expense policy best practices
Following these 6 best practices can help make sure your expense policy is fair, transparent, and effective at managing employee spend, keeping your business financially healthy.
A policy brief & purpose
Include a section that clearly states the overarching intention behind your policy. This section provides important insights for employees about your strategic purpose. The ultimate goal of your policy can act like a north star when employees and accounting staff need to interpret the guidelines and examples found in your expense policy.
Clear communication
Keep your employees in mind when drafting your expense policy. Remember that it's not being written exclusively for lawyers and executives. Your policy should be a living document that any employee can turn to when they need to understand what expenses will or won't be covered.
Make it easy to find
Be sure to publish your policy in a prominent way, so it’s always front of mind. Too many spending policies end up buried in a corporate wiki that employees don’t remember or even know to check. If you’re using an expense management solution, uploading your policy directly into the software puts it right where employees need it—and in the most obvious place to look.
Timely reimbursement
Make timely reimbursement an important goal of your expense policy and consider tracking your reimbursement metrics, including the average days to reimbursement. Many business expenses can strain personal budgets, especially for frontline employees. Let employees know how quickly they can expect to be reimbursed, and be sure to follow through.
Better yet, minimize employee concerns about reimbursements by providing them with carefully controlled corporate cards. This eliminates the need for employees to use personal funds for business spending, and it gives the company far greater control over spending budgets.
Fair policies with strict compliance
Once you've laid out your company expense policy, it's important to stick to it. Extenuating circumstances should only be considered if those circumstances are included in your policy. After all, an important part of keeping your policy fair is to make sure it will be interpreted in a consistent, predictable way, applying the same rules to everyone.
Automated business expense tracking
With the rise of the digital age, the process of implementing corporate expense policies has become simpler and more efficient through automation. Spend and expense automation helps organizations maintain accurate, up-to-date financial data while minimizing human error, saving time, and providing more control over company budgets.
Use an expense management solution
Implementing expense management software can be a financial turning point for just about any business, regardless of its size. It can help financial and accounting teams maintain transparency, run expense reports, conduct financial analysis, plan and set predetermined budgets, and control unnecessary spending. It can also help ensure that internal controls are followed consistently, improve record-keeping, and enhance security with modern payment tools like virtual cards.
Ready to automate your company expense policy?
Tired of being blindsided by random department or employee reimbursement requests? BILL Spend & Expense can improve your control over company funds, letting you see and categorize spend in real time.
Employees can snap photos of receipts in the mobile app and choose a category for every transaction—so what used to take your accounting team weeks (and lots of email chains) gets done in seconds, giving you the fastest month-end close possible.
Learn more about BILL Spend & Expense, automation software that makes expense management easy.
Expense policy FAQ
What makes a good expense policy?
Good expense policies tend to share certain characteristics across all industries and business sizes. They are:
- Compliant with tax laws and any specific industry regulations
- Transparent and fair, laying out company policies for everyone
- Clearly written in plain language, without accounting jargon
- Strategic, reducing unnecessary costs without "gumming up the works" through unwanted bureaucracy
Why is it important to have an expense policy?
Establishing an expense policy has several advantages. It promotes financial discipline, reducing the risk of overspending. It streamlines processes, leading to efficient use of resources. Furthermore, it enhances transparency and accountability, thereby earning the trust of stakeholders. Effective policies for employee expenses can also boost your team's morale by assuring them there's a fair and consistent approach to managing expenses and expense reimbursement.
What are the objectives of expense policies?
While the specific objectives of an expense policy will vary from one organization to the next, the overall goals of most expense policies include ensuring compliance with tax regulations, transparency for employees, and minimizing unnecessary spending.
