Tips for Perfecting your Employee Expense Policy
An employee expense policy is an essential document for any business in which employees may incur business expenses and need to be reimbursed. A good expense policy is clear and easy to use and ensures that business funds are spent effectively and fairly while a bad policy, or a lack of one entirely, can lead to reduced transparency around expenses and ultimately decrease employee engagement. Here are our top tips for developing the ideal expense policy for your business.
What is a Company Expense Policy?
Expense management can be a tricky subject so a clear expense policy is crucial for ensuring that all employees are on the same page. Put simply, a company expense policy or expense management policy, is a set of guidelines and procedures that detail how expenses are handled within an organisation. It should include what expenses are reimbursable, what documentation is required, how a claim can be submitted, the approvals process and how quickly employees can expect to be reimbursed.
For employers, a good expense policy makes the expense and reimbursement process clear and transparent. This lowers the chance of inappropriate claims and unnecessary spending.
For employees, the expense policy clearly tells them what can and can’t be claimed as well as the steps and expectations for reimbursement.
What makes a good expense policy?
A good expense policy is clear, consistent and fair. It must suit the needs of your employees and not be overly burdensome - for either those incurring expenses or the accounting department who need to reconcile them. Make sure to draft your policy with your business in mind. What expenses do you expect employees to incur? What is your budget for expenses? Talk to employees to find out what they need and make sure you review and update your policy regularly.
Make sure your policy is accessible for all employees. It should be clear, specific and incorporate best practices tailored to your business context - including outlining procedures for pre-approvals, incurring expenses and making a claim.
As with any organisational policy, it is not enough just to have one that sits in a draw - a good expense policy is one that is known, understood and used. Consult with key employees from across the organisation when developing the policy and then ensure that it is included in staff training, new employee inductions and regular, top-up trainings going forward.
What should be included in an expense policy?
The details of what makes a good expense policy will depend on your business and context. However, all expense policies should include information on each of the following:
- Purpose of the policy and guidelines for use
- Expense categories
- Limits and budgets per category
- Specific expenses that the company won’t cover
- Dos and don’ts
- Guidelines around preferred providers
- Suitable payment methods
- How to make a claim
Employee expense categories
The key thing for any expense policy is to detail what is and what is not covered by the policy. Expense categories are a great way to break this down clearly and simply. The policy should include a complete list of what is considered a reimbursable expense and if there are any limits and rules around this. For example, if employees are expected to entertain clients, what activities are covered and to what limits? What expenses need to be pre-approved and which do not? Think about the key ways that employees incur expenses in your organisation and make sure these are covered.
Virtual expense cards ensure company spending is controlled and streamlined. Learn more about virtual corporate cards.
Expense management and company credit cards
Another important part of an expense policy is how expenses are managed and how costs are incurred. This should cover guidelines on whether advances will be given, how company credit cards should be used as well as which expenses need pre-approval. If you intend to use company credit cards or provide cash advances for anticipated expenses, there should be specific language on how these are managed.
Tips for getting your expense policy read and understood
Developing a strong expense policy is just the first step. Next, it needs to be circulated, read and understood by your team.
A fair approach to expenses and a simple expense management system is vital for employee engagement. Make sure to discuss this with both employees and senior management. Employees will often go to their managers for information about the expense policy so it is vital that managers can communicate it correctly and clearly.
During the early phase of policy development, or even the review process, engage a wide range of people to ensure that the policy not only meets their needs but is well understood throughout the organisation.
Keep it simple
To be effective, your expense policy should simple and easy. Anyone in the organisation should be able to understand the language and terminology. Keep it specific, concise and include examples, diagrams and templates to help employees put it into practice.
A good policy is one that is tailored to the needs of your organisation and your employees - keep it simple and provide examples that your employees can relate to.
How should an expense policy be communicated to employees?
For new or revised expense policies, it is great to communicate this in a company-wide meeting. Most employees will zone out at the thought of finance so try to think of ways to engage them, such as communicating the information in a visual presentation. Save some time at the end of the presentation to allow for Q&A. Then the policy can be circulated via email and made available on internal file sharing systems to make sure it remains accessible.
For new employees, the expense policy should be part of the training in the onboarding process. Make sure that all new employees know who to reach out to if they have any questions about the expense policy.
How can expense management software help my business?
Expense management software simplifies and speeds up the expense process for both employees and the accounts team. The platform is set with custom rules and limits which not only automates your expense process but it also reduces errors and delays. The platform accepts appropriate claims or rejects those that are missing information or are out-of-policy.
Expense management software improves productivity, efficiency and ultimately improves the bottom line. With DiviPay, you can bring your expense policy to life with virtual cards, budgeting rules and approval workflows. See why businesses are choosing Divipay to automate their spend management and book a demo today.