Removing The Hassle Of Employee Expenses Reimbursement
The expense reimbursement process is tedious and problematic. It leaves finance teams unable to prevent spending mistakes, so they have to spend time and energy putting out fires instead.
The good news is, spend management is making the expense reimbursement process a thing of the past. Keep reading to learn:
- What employee expense reimbursement is
- How business expense reimbursement works
- Why the expense reimbursement process is problematic
- Why spend management is a better alternative to the expensing process
What is employee expense reimbursement?
Employee expense reimbursement is the practice of paying employees back for the business-related purchases they pay for with their own money. This practice is also known as having an "accountable plan" for reimbursing employees.
According to the IRS, an accountable plan requires that:
- Reimbursable expenses have a “business connection” (i.e. the expense is related to your work)
- Employees report expenses within a "reasonable period of time"
- Employees return excess reimbursements within a "reasonable period of time"
Let’s say that one of your employees takes a business trip to attend a conference. Your company’s travel and expense policy requires employees to front the cost of business travel-related expenses, so the business traveler pays for their airfare, hotel room, and conference registration with a personal credit card. Under an accountable plan, the company reimburses the employee for these travel expenses at a later time after they’ve proven that the spending adheres to company policy.
Under a non-accountable plan, companies give employees an allowance for business purchases. In this example, the business would pay for this employee’s travel directly.
How does business expense reimbursement work?
The business-related expense reimbursement process generally works like this:
- Employees make business-related purchases with personal funds. The purchase needs to fall within the company’s expense reimbursement policy for the employee to get their money back.
- At the end of the month (or quarter), employees who have made out-of-pocket business purchases fill out expense reports to explain what they’ve spent money on, show proof of purchase with a receipt, and request reimbursements. If an employee fails to provide adequate substantiation in their expense report, their reimbursement request may be denied.
- The finance team reviews expense reports and approves or denies reimbursement requests per company expense policy.
- The finance team incorporates approved work-related expenses into the books. Then they update the company's spending data, such as actual spend versus budgeted spend, during the month-end close.
- The finance team pays employees back for approved, reimbursable expenses, usually through direct deposit or checks.
And that is how employee expense reimbursement works. But who has time to repeat this multi-step process every month?
Why is the expense reimbursement process problematic?
The expense reimbursement process is problematic for several reasons:
- It obscures the company's actual spend until after the books have been closed. This lack of visibility makes spending a mystery until several days or weeks after the month has ended. Unfortunately, unpreventable surprise expenses can take a significant toll on the budget.
- It makes it impossible to control spending. Finance teams are left to deny out-of-policy, out-of-pocket purchases. Often, out-of-policy purchases result from a mistake or misunderstanding of the policy, rather than intentional abuse.
- It makes the misuse of funds inevitable. When finance teams check expenses manually, it’s easy for things to slip under the cracks. Take, for example, the Silicon Valley CEO who got away with expensing $76k at a strip club. Employees can get away with abusing company policies when finance teams have to review hundreds or thousands of expense reports. With the employee expenses reimbursement process, expensive mistakes are par for the course.
Why spend management is the better alternative to the expensing process
Here's the good news: spend management is replacing the expensing process. Spend management eliminates the need for out-of-pocket purchases by giving all employees access to the corporate card.
Spend management software that comes with virtual corporate cards lets you assign cards to budgets and vendors. When you can grant temporary access to the corporate account to employees through virtual cards, you eliminate the need for expense reports and reduce fraud and misuse. With the spend management process, spending is no longer a mystery until the end of the month. Spend management software shows you what employees are buying in real-time. With no surprise expenses, your company's actual spend will match its budget, and your company can focus on growth instead of fixing mistakes.