spend management, template

Guide to creating an expense policy for your business (+ template)

May 11, 2020

The expense policy is one of the many formal documents a growing business needs to scale successfully. Reimbursing employees’ out-of-pocket business expenses is not only a good business practice—it’s required by law.

We’ve designed a handy guide to creating a basic expense policy for your business, plus a simple template to help you get started.

What is a company expense policy?

50 managers asking the boss, “Wait, can my subordinate even claim for this?” translates into wasted time for everyone involved. The expense policy saves time by telling employees what can (and can’t) be reimbursed and how they should go about the claims process.

According to American expense management company Abacus, “the most common cause of employee spending violations is a lack of understanding of the policy.” Rules should be set before anyone begins to spend company money.

A good policy is clear and concise

Your expense policy must be customized to your employees’ spending habits. There is no one-size-fits-all policy that works for all organizations. However, there are a few guidelines that all CFOs and managers can follow when developing their expense policy.

Understand your accounting workflow

Before writing your expense policy, you need to understand the process for making and reimbursing a claim. Sit down with your team or accountant and outline the steps, then define who is in charge at each point in the process.

Be clear about what employees can spend on

Sort reimbursable expenses into clear categories—like travel, or meals. This provides much-needed clarity and will be helpful should a dispute arise.

The list of common business expenditure categories varies by business, but here are the most common:

  • Travel

    • Mileage
    • Lodging
    • Fare and tickets
    • Parking and tolls
  • Food and meals
  • Medical health and employee well-being

    • Insurance
    • Medical checkups
  • Entertainment
  • Work-related expenses

    • Cellphones and bills
    • Office supplies

Set limits on how much employees can spend

A 2016 Global Business Travel Association (GBTA) survey of business travelers shows that fewer than half of the respondents (44%) had to follow a policy, while a further 21% of travelers don’t have any restrictions on their policies. This can be dangerous if you’ve got tens of employees spending freely on categories that may not be immediately necessary.

To mitigate irresponsible company spending, set sensible reimbursement limits (for example: between $100 and $300) for each category and employee level.

Set expectations from the start

Travel expenses tend to change based on your employees’ daily activity. You may need to take the following into consideration when writing your expense policy:

  • Permissible daily office commutes and travel for client meetings
  • Cab and ride-hailing services
  • Reimbursement ranges for specific business travel destinations
  • Preferred airline or seat class for employee business travel
  • Preferred lodging class or per-night amount/ range for employee business travel
  • Minimum and maximum booking time

Tell your employees which payment methods are accepted

Your company may partner with specific payment providers, or simply wish to avoid the risks involved in carrying large amounts of cash. Make sure your expense policy outlines which particular modes of payments can be reimbursed, and which can’t. This can be highly effective in increasing spending transparency.

Use simple, straightforward language

A confusing expense policy will simply dissuade employees from taking it seriously. The ideal expense policy uses plain, strong language. It also isn’t 20 pages long. You can consider working with a designer to build an easy-to-read but also informative expense policy.

Keep the policy updated

Try to check the policy every so often to ensure that it is still in line with current rules from the top. Rules and regulations change constantly, so your policy needs to be frequently checked and kept up to date.

An expense policy should be a reliable reference for employees. So if it is not being used at all, it may be time to gather your team members and ask how it can be improved. Make sure it is easily accessible, and that all employees know about it!

Make technology part of the reimbursement process

There are plenty of mobile apps and digital tools designed to make expense reporting easier for you, your accountants, and your employees. Use them! Many of these tools combine optical character recognition (OCR) with automated tracking and machine learning to track expenses, scan submitted receipts for fraud, and function as a second layer of security.

Spenmo is one such example of a powerful digital tool with all of these features and more. By providing each of your employees with a dedicated spending card, you can reconcile receipts much more quickly, and help them follow your expense policy.

An expense policy designed to be simple and concise won’t take that much time to create. Allotting just a few hours with your accountant to create an expense policy will provide long-term clarity for your business, and help you manage business expenditures more wisely.

Our template

[Company name’s] Expense Policy is our internal guide for work-related expense claims and reimbursements. It is applicable to all members of our company.

Company expectations

Note: In this section, explain the company’s procedures and expectations for expense claims, as well as its rules on out-of-policy expenses.

All expense claims are subject to internal and external audit. Failure to comply with the rules may result in delayed reimbursements. Expenses must be paid for with a [Company name] credit card (or, in specific cases, a digital wallet) in order to be eligible for reimbursement.

To make a claim for reimbursement, download [Accounting mobile application]. Every time you incur an expense, take a photo of the receipt and upload it. Expenses must be checked and include supporting documents. A credit card statement is not an acceptable proof of purchase. Whenever possible, you should include the receipt and document how the expense incurred relates to [Company name].

Submit your expenses as soon as possible. You have up to 4 weeks to submit expense claims. Claims submitted after the 25th of each month will be processed the following month.

If the expense report is cleared, reimbursement will be made within 2 weeks of receipt.

Travel expenses

Note: In each section, you should define the expense, as well as acceptable and unacceptable types of expenses. Consider including price ranges or per diem allowances when applicable.

We reimburse reasonable transportation and accommodation expenses incurred on work-related trips. These may include:

  • Hotel or Airbnb accommodation
  • Air, train, ship, bus, taxi, and/or ride-hailing expenses
  • Necessary medical expenses (such as vaccinations)
  • Legal travel documents (such as visas)
  • Per diem expenses
  • Internet costs for work
  • Mileage: $.50 per kilometer driven using the most direct route

The following are not reimbursable:

  • Expenses incurred by spouses
  • Restaurant or service gratuity or tips
  • Personal purchases (gifts, clothes, etc.)
  • Personal services (massages, salon treatments, mini-bar drinks, etc.)
  • Unauthorized service upgrades (hotel room, plane ticket, etc.)
  • Lost personal property
  • Parking fines

When possible, please choose the most economical option. On occasion, we’ll contract with hotels or travel agencies to get the best prices. Should you wish to book a different option, please notify [Contact Person] and receive approval. Please ask [HR Manager] about specific expenses before making a purchase.

[Company name] reimburses company-vehicle expenses such as fuel, insurance, maintenance, and repairs. When making a claim, include information about the service or cost.

Work-related expenses

At [Company name], employees are eligible for a capped reimbursement amount for benefits or other work-related expenses. These may include:

  • A business phone or other business devices/technology
  • Professional dinners with clients or colleagues
  • Learning and development expenses

These costs need to be approved by [HR/employee manager]. All expenses above the approved amount will be shouldered by the employee.

The following are not reimbursable:

  • Unscheduled business meetings
  • Fines incurred when driving a company vehicle
  • Unauthorized business trips
  • Personal trips
  • Non-work-related subscriptions

As with travel expenses, please ask [HR Manager] about specific expenses before submitting your claim.

Food and beverage expenses

Note: Your company may have a per diem policy with permissible limits for breakfast, lunch, dinner, and drinks. Include guidelines for meals hosted for clients.

[Company name] reimburses a capped amount of $25 per meal taken during business trips (exclusive of gratuity or tips). If employees are entertaining a client or supplier for legitimate business reasons, you may claim a maximum of $50 per guest. Include the purpose of the meal, as well as the names and roles of the guests.

Alcoholic drinks are not reimbursable.

Other notes

Note: Your company may choose to offer cash advances to employees. If so, include the information and relevant procedure here.

Your accommodation and transportation for business trips will be arranged by [personal assistant/ HR representative]. Please document any and all expenses that have not been directly arranged by our company. You may also receive a per diem amount of $100 to cover other necessary travel expenses.

Submit your reimbursement claim through [software] or as an expense report within 1 month of the end of your trip.

In the case of excessive expenses, falsified or exaggerated claims, or duplicate claims, we will take disciplinary action.

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