How to Build a Fair Employee Reimbursement Policy

As your company grows and you hire more employees, setting guidelines and policies that are fair, consistent, transparent, and easy to understand becomes paramount. For many reasons, one of the most important policies you should consider is an employee reimbursement policy. 

For some business models, employee expense reimbursement is essential. It ensures that you fairly compensate employees for their time and resources in the company’s interest.

What is an expense reimbursement policy?

An expense reimbursement policy is a system used to reimburse employees for the expenses they incur while working. These include travel expenses, meals, and other business-related costs.

An employee expense reimbursement policy is typically part of an employee handbook that sets forth the expectations of employees and employers. It also typically includes requirements for requesting, processing, and procedures to address errors.

How to create a fair expense reimbursement policy

You can take a few steps to ensure your expense reimbursement policy is up-to-date and works well for your company.

Choose reimbursable expenses

A good expense reimbursement policy lists which expenses are eligible for reimbursement. Decide which payments you want to reimburse and list qualified expenditures for review. 

The list should be exhaustive and as detailed as possible to avoid confusion and mixed messages. Typical eligible expenses for employees include:

• Travel expenses – transportation, parking, taxi fares, and tolls
• Meals – restaurants, cafeterias, hotels, and other food establishments
• Other expenses – supplies, equipment

Outline pre-approval process

Pre-approval of employee expense reimbursements is fundamental to your expense reimbursement policy. Find out what steps stakeholders should take to ensure pre-approval. 

In some companies, managers are responsible for the pre-approval process in their departments. They consult the HR or accounting team to ensure that the request follows company policy and then give the employee a verbal or documented approval.

Determine an expense reporting process

Before implementing an employee expense reimbursement policy, determine the reporting process. Consider how your employees should record and report reimbursable expenses. The reporting process should be easy to follow to facilitate accuracy and consistency.

You can choose to issue a company card to employees to simplify documenting reimbursable expenses like flights, train tickets, and hotel stays. However, unanticipated expenses like parking, coffee, and food might need a detailed corporate travel policy that includes a standard format to verify expenditures.

Ensure employees know reporting processes and provide them with the appropriate tools to make expense reports.

Decide how to reimburse

Your expense reimbursement policy should include the reimbursement method, amount, and timing of reimbursement. You can reimburse employees for the actual costs, a percentage of expenses, or a fixed amount. Implement a method of repayment that fits your company’s budget and cash flow. 

Establish deadlines

Your expense reimbursement policy should set forth the deadlines for making reimbursement requests. The timeframe will depend on how your employees work, how long it takes to compile receipts, and how complicated the demands may be. Employees should understand the process and know when they can expect a determination.

Before you go

An expense reimbursement policy can be beneficial to your company and employees. It defines the correct set of rules and expectations that will allow employees to maintain financial responsibility, quality of products, and benefit to customers.