There are good ways and bad ways to handle business expenses. The easy way is to collect all the receipts and let the accountant sort it out. That may be easy for those submitting expenses, but it’s hard on the accountant and hard means time-consuming and costly. The right way is to have a set of policies and procedures for submitting, approving and reimbursing expenses quickly and fairly.
1 – Keep it Simple
For any expense policy to be successful people have to be able to understand it, abide by it, and most of all think it’s reasonable. In a word, it has to be clear. That starts with keeping it simple. Make it easy for everyone involved, from employees submitting expenses to managers approving them. A straightforward process makes reimbursement easier and that ensures buy-in. Traditionally, the biggest bugaboo in expense policies has been the paperwork. Incorporating a system such as Abacus streamlines and simplifies the process from start to finish, making it simple and easy.
2 – Make it Fair and Flexible
A set of policies that are fair and flexible starts with its being transparent. Transparency starts with having a clear expense policy that is readily available to everyone. Spelling out the rules for reimbursement clearly and concisely allows participants to understand what to expect.
3 – Spell it Out
A vital part of a good expense policy is a list of allowable expenses. The IRS has very extensive guidelines for travel, entertainment, gift and car expenses which is an excellent place to start building your list.
4 – Obey the Law
When your plan follows the law, two things happen. Your expenses will all be tax deductible, and your staff will not have to report expense payments as income. When your expense policy adheres to the law your accountant will not have to spend time sorting expenses into deductible and non-deductible. Your list of acceptable travel expenses might include dining and entertainment that meets the directly related test. This is important because allowable entertainment expenses depend on your type of business.
5 – Documentation
Your list of allowable expenses should also include what sort of documentation is required, such as a receipt and the reason for the expense. Requiring a proper document ensures that expenses are reimbursable and it ensures that you have a paper trail in the event the IRS questions the validity of the expense.
6 – What’s Not Included
A good idea is to also discuss excluded expenses which are not reimbursable. For example, your reimbursement dining and entertainment can exclude alcohol. Explain why they are not and whether there are exceptions. Some examples of excluded expenses are in-room or in-flight movies.
7 – Spending Caps
Many businesses include spending caps as part of their expense policy. Caps can take several forms; the first is with a straight per diem rate for expenses like meals. Alternatively, you can cap spending by limiting options such as restricting car rentals to compact cars. Caps can be flexible with conditional spending limits, such as, the lowest cost airfare for a non-stop flight. Caps may also be a straight per diem; this allows the employee to upgrade at their own expense.
8 – Rapid Reimbursement
It’s easy to forget that when your employee has taken money out of their pocket to pay for a reimbursable business expense they are loaning your business money. Paying it back on time is not only the right thing, it’s good business. Using a secure automated service like Abacus allows reimbursements to be directly deposited into employee bank accounts. An online service is especially useful for employees who work remotely or are on the road. They don’t have to wait to return to the office to submit expense reports.
9 – Same Rules for Everyone
Having one set of rules for everyone fosters a sense of fairness and simplifies administration of the policy. Regardless of how your business is structured having a single set of policies reduces resentment between different tiers of employees. It will also go a long way to streamlining your accounting process. Of course, having rules is of no use if they are not enforced.
10 – Rules are Rules
Enforcing the rules reinforces fairness and reduces the likelihood of abuse. Since the purpose of your expense policy is to be fair to your employees and control your costs you will want to avoid disagreements as much as possible. The best way to enforce the rules is before they are violated and that means spelling out what are not reimbursable expenses. For example, personal items, such as cosmetics and hair care products and in-room movies and games.