How to Create Your First Company Expense Policy
As a company starts to grow, it becomes more important to have policies in place. Not because you don’t trust your employees – just the opposite actually. Policies help employees understand what is expected of them and leaves them feeling at ease. When you are a small group, you can often communicate these expectations one-on-one, however, as you grow that gets harder and less efficient. A written policy will make life easier for everyone.
Creating your first company expense policy starts with the a good understanding of how the business is run. Understanding how expenses will occur and what will be the most common situations and then moves through to answering questions that employees will have, but in the middle, you also need to accommodate for the rules and guidelines set forth by the federal and state laws.
Here are a few things to consider and include when building your first company expense policy.
Know the Law
The first thing you need to do is make sure that you understand the laws and rules around business expenses. The IRS and even specific states have laws that may impact your policy. Be sure to understand what kind of records you need to keep and for how long. Another area to pay close attention to is per diems – laws differ by state for what is considered acceptable rates.
Ask for Input
You know the laws and you know what business expenses look like historically, but predicting the future can be harder. Be sure to ask for input from your senior management team – what are their budget plans? Do they foresee any travel changes or new expenditures for their team? Getting a sense of what’s coming will help you setup an expense policy that is realistic. Another great time to ask for input is once you’ve written a draft of the policy – ask a few employees for feedback to make sure it’s easy to understand.
Communication is a two way street – it’s only as good as how well the receiver understands the intended message. Try to use as few words as possible to not only communicate the rules, but also the process and expectations that every involved party should have. Cover what needs to be submitted, the timeframe it should be submitted in, and how long it will take to be reimbursed. The more straightforward you are, the less lingering questions there will be.
Call Out Exceptions and Discretionary Circumstances
No matter how hard you try, something will happen that requires a judgement call by either the employee or their manager. A flight might be delayed, special client requests might be made – there will be times when the expenses won’t fit into the expense policy box. By addressing what to do in these situations, you’ll be able to avoid mishaps and mistakes. Clearly define what should be done for gratuity, special requests and one-off situations.
Make Your Policy Accessible
If employees don’t have access to it, they can’t follow it. They also won’t look very hard to find it. By using an internal website or an expense management tool, you can make sure that everyone has quick and easy access to the policy.
Automate and Mobilize
Work expenses don’t always happen at a desk in the office. Often they occur in a taxi or at a restaurant. Using expense management software that has a mobile app will help employees submit their expenses faster and more accurately. You’ll also be able to automate the workflow with your expense policy built in, which will ease the administration burden of managing expenses.
Checks and Balances
If you decide to use expense reporting software to manage your expense policy, find one that integrates with your accounting software. Your systems should be in sync in order to consistently provide you with reliable, accurate data. If you integrate expense reporting software that syncs in real time, you’ll also be able to keep an eye on how company dollars are being spent as it happens and how it affects your cash flow, making sure that your policy is inline with the needs of the company.
- The IRS requires that you keep business expense records for 3 years (assuming everything was filed correctly), however, most independent tax firms recommend you keep them for 7 years.
- The GSA provides a great resource of per diems per state.
- The IRS only requires you collect receipts for expenses over $75, so if it’s not important to you, you don’t need to require them for reimbursement.
- You are not required to reimburse employees for mileage, they can deduct it on their own taxes instead. However, that means you won’t be able to deduct the expense.