• Linkedin
  • Twitter
  • eMail

Expense Reimbursement Policy 101 [+Templates]

By Rebecca Morrison, published on Oct 31, 2019
Expense Reimbursement Policy 101 [+Templates]


Owing someone money creates tension and confusion. It prevents you from having an accurate understanding of how much money you have and strains relationships. These feelings of chaos and stress are no different when a company owes its employees money.

No, we aren’t talking about when a company can’t make its payroll. That’s a conundrum that we can’t help you solve in the brief confines of this medium. Instead, we’re talking about expense reimbursements - when a company owes its employees money for out-of-pocket purchases that they made on behalf of the company.

So what’s the solution to preventing the stress associated with owing your employees money? Establishing a formal expense reimbursement policy. These guidelines set expectations so that employees keep their spending on track and the company can pay them back in a timely manner.

We’re sharing everything you need to know about creating an expense reimbursement policy, or reworking an existing one, including:

  • How to create your policy,
  • How to document and implement the expense reimbursement policy
  • Tips for enforcing the policy
  • Examples of expense reimbursement policy templates

How to build your expense reimbursement policy

Before you can build an effective expense reimbursement policy for your company, you need to understand exactly what it is.

What is an expense reimbursement policy?

A company’s expense reimbursement policy is a set of guidelines that dictate what out-of-pocket purchases employees can make on behalf of their company, and how and when they will be paid back for this spending.

Ever gone on a business trip and been frustrated by having to hold on to receipts from each purchase made during the trip? You had to do this because your company’s reimbursement policy probably required you to prove your work-related purchases with a physical receipt.

So what kind of a business needs an expense reimbursement policy? The answer is simple: any business in which an employee makes a purchase on behalf of the company using personal funds (cash, personal credit card, etc.) instead of a corporate credit card should have an expense reimbursement policy.

Out-of-pocket expenses are very common for event planning or travel heavy roles. An employee might pay out-of-pocket for cab fare from the airport to a conference center. Or someone might use personal funds to buy last minute supplies for a fundraiser that their company is hosting. When employees use their own money to make purchases on behalf of their employer, they need to know how they will be reimbursed for these expenses.

How to create an expense reimbursement policy in two easy steps

Now that you understand what an expense reimbursement policy is and why your company needs one, it’s time to create one. There are two key steps to building an expense reimbursement policy:

1. Create guidelines for what counts as a reimbursable employee expense

Ask yourself these questions:

  • Is the expense travel-related? If yes, refer to your corporate travel policies. You should have guidelines for what does and doesn’t count as a travel-related expense in there. For example, a travel time expense — like meals eaten while traveling — would be reimbursable so long as they adhere to your company’s per diem rates.
  • Expenses that aren’t travel-related can be reimbursed if they meet the criteria for accountable plan rules. The IRS creates guidelines for reimbursing employees so that these expenses don’t count as taxable income. For expenses to meet accountable plan rules they must be work-related expenses and reported to employers in a timely manner.

2. After creating guidelines for what counts and what doesn’t count as a reimbursable expense, you need to create guidelines for how employees should report expenses.

First, have them track their purchases by saving receipts. They should note what each expense was for to prove that it’s business-related if the IRS decides to conduct an audit. Tired of collecting paper receipts? Use an expensing tool to automate expense reports and simplify travel expense tracking.

Next, set deadlines for filing expense reports so that you can close the books and reimburse employees in a timely manner.

Set expectations for when and how employees will be reimbursed. For example, you could reimburse employees for out-of-pocket expenses via direct deposit when they get their paychecks, or you could cut checks 30 days after the expenses have been processed. It’s just a matter of deciding what works best for your organization.

How to document and implement your employee expense policy

Creating a reimbursement policy for out-of-pocket expenses is half the battle for a finance team. Proper documentation and implementation are the keys to policy success. You can do this by:

  • Making your company’s expense reimbursement policy clear and specific. Define any potentially confusing jargon so that employees won’t misunderstand the rules.
  • Testing it out on employees. When you know the ins and outs of accounting, it’s easy to assume that everyone else does too. Test your new policy on a focus group before rolling it out to the entire company to see what you need to explain or simplify. Does everyone understand what an accountable plan is? Are “work-related expenses” clearly defined? Can employees get access to the company credit card instead of paying out of pocket? Get feedback to determine whether or not the policy has clauses that can be misinterpreted. Make adjustments as needed.
  • Announcing the new policy and making it easily available through your company's communication tool, Slack, intranet, etc. Make the policy available in a cloud-based drive so that employees can review it on the go. This accessibility is especially important for your business travelers.
  • Including the expense reimbursement policy in your corporate travel policy to make it even more accessible.
  • Equipping employees with travel and expense software to enforce the policy. Give them an expense management tool to help collect receipts and file expense reports and travel booking software to track travel expenses.

Another factor in the success of your expense policy is timing. To optimize adherence to a new policy, implement it at the start of a new year (fiscal or calendar) or after you’ve created new budgets or audited travel and expense spending.

Tips for enforcing an expense reimbursement policy

After implementing your reimbursement policy, it’s important to enforce it to avoid fraud. Expense reimbursement fraud usually happens in one of two ways: when employees make up expenses that they didn’t have (like a taxi ride to a meeting that they walked to) or when they inflate expenses (renting a luxury vehicle instead of a more economical option). Fraud leads to death by a thousand papercuts.

Minor travel expense reimbursements can add up. Let’s say that an employee uses a personal credit card to pay for a cab ride taken for a personal outing during a business trip. The fare costs only $6 so it slips under the finance department's radar. However, when you multiply minor fraudulent expenses like this one by dozens of employees and hundreds of rides, this $6 could quickly turn into $6,000 or $60,000!

It’s important to enforce an expense reimbursement policy to maintain control over company spend and prevent any greedy employees from draining the company’s resources for personal use. If one person gets away with fraud, others will follow suit. If you enforce the policy and punish abusers, overspending and fraud will stop.

Use these tips to avoid expense reimbursement fraud:

  • Ask employees for receipts that include the vendor’s name, date and time of purchase, and list of items bought.
  • Scrutinize receipts. Are they forged? Do the purchases make sense? Is the employee trying to get reimbursed for a tip although gratuity was included in the meal? Does the receipt have a bunch of business-related expenses and several personal purchases hidden amongst them? Play detective.
  • Create consequences for fraud. Firing employees who commit fraud will set an example and discourage others from following suit.
  • Create consequences for overspending. If employees spend over the per diem rate for their trip, reimburse them up to the allowed amount, but don’t let them get away with anything more. If a certain employee consistently overspends on business trips, consider giving them fewer travel opportunities.
  • Use tools that enforce the company’s spending policy. Adopt a travel booking tool that shows which options are on-policy and which aren’t. Employ a mileage reimbursement tool with GPS tracking to prevent employees from trying to get the company to pay for personal trips. Technology makes it easier than ever to identify and prevent expense reimbursement policy fraud.
  • Grant employees access to virtual corporate credit cards. These cards give administrators the ability to track spending in real time. If a finance team member sees a business traveler making suspicious purchases, they can send the employee a warning or email them a copy of the expense policy as a reminder.

Enforce your company’s expense reimbursement policy to avoid fraud and save your company money.

Expense reimbursement policy templates, examples, and resources

Now you’re ready to make your own expense reimbursement policy. Here are a few resources to help you along the way.

Expense reimbursement policy templates

Expense reimbursement policy examples

Other helpful resources

When your company has a clear, easy-to-find expense reimbursement policy, employees are more likely to adhere to it. When employees adhere to the policy, they can spend less time worrying about expense reports and more time doing what they were hired to do.

Lola.com and Expensify can help your company take control of its travel expenses with corporate travel policy enforcement, travel booking, expense tracking, digital receipts, and automated expense reporting capabilities.

About the Author: Rebecca Morrison
As VP of Finance and Operations, Rebecca Morrison oversees financial reporting and analysis, forecasting, and budget management for Lola.com. Previously, she was VP of Global Finance and Operations at Midaxo, and has held various roles in Finance and Operations at HubSpot and EMC.