Reimbursing employees for expenses seems like it should be a straightforward process, but like so many other processes in HR and business accounting, there are many things that can go wrong. Failing to properly handle and document expense reimbursements can wind up costing your company money in taxes or even legal fees.

Below are a few best practices to consider for reimbursing employees for expenses.

Managing Expense Reimbursements

1. Make firm policies.

Every company should clearly outline their policies regarding business expenses in their employee handbook. The policies should include entries for different kinds of expenses like travel or equipment. It should also lay out clear guidelines for what can be reimbursed and steps for how expenses are approved. Companies that have transitioned to remote work settings during the COVID-19 pandemic should also consider reevaluating their policies to account for work-at-home expenses or home offices.

2. Maintain proper documentation.

The IRS requires receipts and other documentation for business expenses. Make sure your employees know exactly what they need in order to claim an expense for reimbursement, and give them a simple system to submit those expenses. Keeping the documentation process easy for employees will make it easier on your HR department and increase compliance with IRS rules.

3. Try to keep expenses separate from payroll.

Tacking a reimbursement onto an employee’s paycheck may seem simple, but that money can then incur payroll taxes and force the employee to declare the reimbursement as income. To avoid these taxes, employers should work to correctly set up a non-taxed reimbursement code for processing their payroll and reimbursements separately. Along with avoiding unnecessary taxes, separate accounting also helps make auditing employee expenses much simpler.

4. Regularly audit expenses.

While no business manager ever wants to discover an employee committing fraud, audits can be important for larger companies or businesses where employees charge large amounts of expenses. Audits can uncover employees who are submitting dishonest expense reports. This helps eliminate fraudulent expenses for the company and keeps the business in compliance with IRS fraud regulations. Even in cases where no fraud is discovered, audits can be useful for analyzing business expenses and making changes to reduce overall costs.

5. Always consider your employees.

Managing expense reimbursement may seem like a routine accounting task back at the office, but it has a big impact on the lives of employees. Expense policies can affect how comfortable employees are when they travel and whether they can use business expenses to accrue points for reward programs. The process for submitting, approving, and paying out expenses also impacts how quickly employees are reimbursed.

Need Assistance with Managing Expenses?

Expense management can sometimes feel like a daunting task for HR departments. Contact us today to learn how LBMC Employment Partners can help. From payroll services to HR outsourcing to our PEO services, we’re equipped with a comprehensive suite of HR services to grow and scale with your company along the way!