When there’s a question about the employer’s money, it’s always good to have rules. A company expense policy is a set of rules that let the employees know what they can do with the company’s money. It also ensures that the employee gets a reimbursement if they pay out of their pocket.
So, It’s a win-win situation for both the employer and employee, making sure that not much time is wasted in reporting, submitting, approving, reimbursing, and auditing employee-initiated business expenses.
The company expense policy should clearly state what is included and excluded in the reimbursement process. In simpler terms, it should have all the guidelines mentioning what the employees can and cannot purchase at work; whether travel, food, and other welfare products and services can be availed through company money.
How do you write an expense policy?
The company expense policy should clearly state what is included and excluded in the reimbursement process. In simpler terms, it should have all the guidelines mentioning what the employees can and cannot purchase at work; whether travel, food, and other welfare products and services can be availed through company money.
What are the necessary elements of a company’s expense policy?
- List of allowable expense categories
- List of prohibited expenses categories
- Spending limits for every expense category
- Procedure to create an expense report
- Payment methods and rules regarding receipts
- The reimbursement process
- Rules regarding any special or out-of-list expense
- Point of contact in case of queries
- Local regulations and legalities
List of Allowable Expenses Categories
A clear list of expenses that fall under the company policy should be mentioned. It usually includes :
- Vendor payments
- Travel (Airfares, railway ticket, car rental, cab charges, etc.)
- Petrol or diesel cost when traveling for business reasons via own vehicle
- Accommodation (In case of out-from-home-city travel)
- Legally required documents such as travel visas.
- Food expenses during company-related events
- Stationary or any other expense for company use
- Phone or call charges
A checklist of pre-approved expenditures should be in place to minimize the time spent on the reimbursement confirmation.
List of Prohibited Expense Categories
The list of prohibited expense categories is as important as approved expense categories. The best way to come up with this could be a company-wide survey on what the employees could confuse or assume to be a part of the company expense policy. Make sure to be fair to your employee’s requirements when coming up with such a listing.
Some examples of ineligible expenses include:
- Personal purchases while traveling (souvenirs, gifts, clothing, etc.)
- Upgrades in traveling
- Fines during travel due to traffic regulations or misdemeanor
- Unauthorized business meetings or trips
- Any rules regarding alcohol consumption
Spending Limits For Every Expense Category
It is extremely important to have a spending limit mentioned, according to the company budget. For smaller companies or startups that may not have a full-time CFO, utilizing a fractional CFO can be a cost-effective way to ensure financial oversight and the development of effective budget policies. The policy should have annual budgets for teams and spending limits for employees according to their roles and requirements.
Procedure To Create An Expense Report
Expense reports can be of different types. Some are cumulative and show expenses over a certain period of time (a How to Create a Company Expense Policy week, month, or quarter), and some are more specific to each payment made by every employee. No matter which case it is, it’s best to have certain things included in the expense report:
- The date of the expense
- The category (travel, food, stationary, etc.)
- The total amount paid, including taxes.
- The vendor the payment went to
- Whether the payment is allocable to a specific project or client
Payment Methods and Rules Regarding Receipts
The policy of an organization should describe in detail the various scenarios in which a specific payment mode should be used, along with the spending limit and process of reimbursement for each. Different modes of payments may exist within the organization, and the policy actively specifies how and when each mode should be used. 
- Expense advances. When the amount to be paid is very high to ask an employee to pay, expense advances come into play. The company should clearly specify the reason and scenarios of its use along with the receiver of a definitive bill and the remaining amount if any.
- A company-issued credit/debit card. The policy should be specific about who is in charge of the card along with the person who would track the expenses made by the card. The employees should always have a contact person for any query and know how to track their own payments via the card.
- Payment out of pocket. Sometimes employees may need to pay for work expenses with their own money. In such a scenario the policy should mention a step-by-step procedure to file a reimbursement.
- Simplify expense tracking for employees. A clearly defined head for each expense type helps in a faster sorting and approval process.
- Downloadable reports. It helps in better planning and tracking of the budget long after the payment is done therefore simplifying the accounting process.
- Hassle-free tracking. Convenient access to all the bills and reimbursements for employees and the company.
- Convenient payouts. The payment can be done directly to employees’ bank accounts along with the overall payroll.
- Technology friendly. Upload bills by clicking the photograph from your mobile devices, or by scanning and uploading it on the portal.
- High Speed. Instant notifications to managers/administrators can avoid missing out on urgent approvals.
Completely customizable. It can be flexible according to the company and its employee’s requirements.
- Everything at one place. From the expense type in the amount spent and the picture of a receipt, Asanify simplifies the reimbursement process by letting the employees enter all the information in one place.
- Budget per project. The admin can directly access the request of all the employees chronologically and calculate the total budget spent on a project and reimburse accordingly.
- Not just the reimbursement process, Asanify helps through every step of the HR process like managing salary, payslips, timesheets, leaves, and so on.
Frequently asked questions:
1. Introduction that explains the purpose of the expense policy, all its updates, and the last time it got updated.
2. Expectations of employees making purchases with the company’s funds and making sure they comply with the policies.
3. Outlining Procedures and guidelines.
4. Listing out allowable expenses that can be reimbursed.
5. Listing out Non-allowable expenses that cannot be reimbursed.
1. Creating a management plan for employee expenses
2. The expense spending process should be clear and thorough
3. Setting a budget for the category of employee expenses
4. Payment methods to be provided to employees
5. Digitizing collection of expense receipts
6. Finally, track expense reports in case of fraud
It is a set of guidelines and rules that define how employees can spend money on behalf of the company, and how those expenses will be reimbursed.
It is important because it helps to establish clear guidelines and expectations around employee spending, which can help to reduce the risk of fraud, abuse, and misunderstandings.
It should be clearly communicated to all employees, ideally through a written document that is provided at the time of hiring, and through regular training sessions or updates.
Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant or Labour Law expert for specific guidance.
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