Expense reimbursements are something every growing small business will have to deal with at some point.
Unfortunately, they can also be a lot of work to get through, both on your end and your employees. After employees fill out expense report after expense report simply to get their money back, the finance team must then spend hours verifying data and actually processing the claims.
Erroneous reimbursement claims have cost people their jobs; one employee learned this lesson the hard way, getting fired from her job after charging a $9.95 hotel room movie rental on her business travel expense report. But bosses can be just as guilty. According to a survey by the Association of Certified Fraud Examiners (ACFE), members of “executive/upper management” departments account for 27 percent of instances of expense reimbursement fraud.
Before you come up with a system of reimbursing employees, it’s a good idea to define what reimbursable expenses actually are in the first place, both for you and your employees’ sake.
Expense reimbursement is a way for employers to pay back workers who used their own money to pay for business expenses. Generally speaking, a reimbursable claim must meet the following requirements:
- Any claim must be clearly associated with your business. More specifically, it should be related to the services rendered by an employee to their employer. Of course, this is a broad definition that could cover anything from an Uber ride during a business trip to a business phone.
- A reimbursable claim must be backed by a receipt of some kind, an invoice, or any other document showing the transaction and its corresponding amount and tax.
- Reimbursable expenses should be forwarded to the appropriate department for repayment within a reasonable amount of time.
Despite these defining factors, identifying a reimbursable expense can still be tricky. It’s for this reason that any growing business should create a comprehensive expense policy that defines the scope and types of accepted reimbursable expenses.
Business expenses are perhaps the most common type of work-related expenses incurred by employees in almost any company. According to the IRAS (Inland Revenue Authority of Singapore), business expenses are “the costs you have incurred in the course of running your business.”
Examples of allowable (i.e. tax-deductible) business expenses include:
- Employee/staff costs such as medical expenses (more on this later)
- Finance and professional costs such as accountancy fees, interest on money borrowed for use in business, and legal fees in recovering business debts and renewal of leases
- Running costs such as the cost of traveling in the course of business; utility and telephone charges for the business; stationery and postage fees; repairs and maintenance of equipment and assets used for business; and maintenance of motor vehicles used for work.
For the average startup and small business, the most common business expense your employees will ask you to reimburse are office supplies, meals during business meetings, and training/education programs that help them do their jobs better.
These types of reimbursements are usually not considered wages, which means they are non-taxable for employees.
Once your employees begin traveling for business and incurring work-related costs, you may find yourself facing rising reimbursement costs. According to a study commissioned by the Singapore Tourism Board, 32 percent of business travelers in Singapore are likely to travel outside of company policy.
The simplest way to prevent this problem is by being clear on what your company considers as a travel expense. Any or all of these costs might be considered allowable travel expenses:
- Airline tickets, train tickets, and ferry tickets
- Car rental costs
- Cabs and ride-sharing costs (e.g. Grab, GoJek, Uber)
- Costs incurred when entertaining a client
- Other incidental expenses
Which of these does your company accept? How are they reimbursed? How does your company address coupons and discounts that may not be reflected in the submitted receipt?
As company spending on business trips is predicted to soar to $900 billion by 2025 (up from $400 billion this year, according to Amadeus), you want to be particularly careful when outlining your expense policy’s section on travel expenses. While it’s relatively simple to control expenses you can book beforehand like transport tickets and lodging, expenses like cabs and meals, which have to be paid for during the trip, can quickly add up—especially if you have multiple employees traveling several times a year.
Finally, you have medical expenses, which include medical consultation (MC) fees. According to the Ministry of Manpower, these costs must be reimbursed to employees if their MC was handled by a medical practitioner from an approved public healthcare provider.
You also need to reimburse your employees if their medical expenses were paid out of their own pocket, or their MediSave or MediShield. In this case, the order of reimbursement is as follows:
- Reimburse the cash portion
- Reimburse the MediSave portion into your employee’s MediSave account
- Reimburse the MediShield portion to the insurer
According to research by Appzen, businesses around the world spend up to US$1.25 trillion on travel and entertainment (T&E) expenses each year, which is roughly 10 percent of an average company’s overall budget—second only to payroll.
Aside from the expense policy, you may also track business expenditures with the help of a reliable, automated spend management platform like Spenmo. Companies large or small can reap the benefits of such a platform.
Your employees will receive company cards which they can use on the road, and your HR team will gain enhanced control and visibility over employee spending. Schedule a demo today to learn more.
It’s clear that keeping track of and controlling these expenses is vital to any company’s survival.
Being thorough at the beginning is sure to save you time and money as your business grows.