Is it Time for Your Company to Draft an Expense Policy?

Expense Policy

Why Bother with an Expense Policy?

Still don’t have a written expense policy? Do not worry, you are not alone. Many businesses and startups overlook this item at the beginning. Initially, it may seem unnecessary because there are not a lot of travel and expenses incurred and, if there are, they are mostly incurred by a select few people.

However, as your business grows, you will notice more of your staff are either requesting reimbursements or you are having to add more employee credit cards to your account. Worse, you may begin to be concerned that your employees are over-spending on certain expenses. This not only instills a lack of trust in your staff but also makes it difficult to budget. That is when it is time to rein in the spending and begin drafting your expense policy.

A good expense policy offers many benefits. It will help with training and provide an established process for new employees. A good policy reduces confusion about what kind of expensing and spending is acceptable. And, a big benefit from an accounting perspective: an expense policy will help with budgeting and forecasting. Are you sold yet? Use these tips we have compiled for when it comes time for you to draft an expense policy.

Determine a Standard Budget and Procedure

First, as the employer, decide on the spending budget and what can be expensed. This is not to say just pull numbers out of thin air. Discuss with your team, and look at your historical expenses to create a reasonable, yet fiscally responsible budget. Make sure that budget is standardized across staff. Next, decide on which of those expenses will be paid directly through the company and which ones will be paid for by the employee up front to later be reimbursed. For example, many companies will arrange travel and accommodation on behalf of the employee and then offer a per diem for expenses incurred while traveling.

Include a Schedule

Something to consider in this process are the IRS requirements for an expense policy:

Expense Policy - IRS Requirements

With these requirements from the IRS in mind, you will want to include a schedule for claiming expenses. This should include how quickly an expense should be claimed by your employee and also how quickly after claiming the expense the employee should expect reimbursement from your company.

Create a List of Qualified Expenses

You may wish to include a list of what are allowable or qualified expenses:

  • Travel (plane, car, taxi, rental car, gas, hotel and accommodation): Consider whether economy only or plus and first-class travel should be included. Are luxury hotels okay, or do you want your employees to be staying in budget options like extended-stay hotels or AirBnB’s?
  • Meals: Is this a per diem, or a set amount per breakfast, lunch and dinner? Is there a different budget if the meal is for client dinners versus travel dinners?
  • Entertainment: Consider if your employees will need tickets to sporting events or golf outings to host clients. Will you provide a per diem for entertainment while they are traveling for business? Perhaps “Entertainment” is an expense that always needs manager approval in advance.
  • Supplies: Does your company ever require an employee to pick up supplies on the fly for a company event? Or, is this something that should always be approved in advance?
  • Subcontractors: If you employ subcontractors who are likely to incur expenses, it is even more of a reason to have a clear expense policy prepared. Are there additional expense items that are only relevant to your contractors?
  • Exceptions: Are there exceptions you can include right away in your policy?
  • Exemptions: Are there expenses that should never be expensed?

Related Read: In 2018, the Tax Cuts and Jobs Act (TCJA) enacted extensive changes to the deductibility of meals and entertainment (M&E) expenses for companies.

Consider the Best Methods for Reporting

Once the details of the policy have been ironed out, it is time to consider reporting. There are templates you can find online like this one from MS Word, but in this day and age of cloud accounting, there are also plenty of reporting tools you can consider, as well, like Expensify, Receipt Bank or Concur. Some of the benefits of these are:

  • A streamlined reporting process to track and submit receipts online or through an app;
  • Employees can report on the fly, which is more efficient and reduces the likelihood of losing receipts;
  • It provides an easy way for you to track expense spending;
  • If you enable public reporting within your company it may encourage employees to actually spend less;
  • It reduces paperwork, which is good for efficiency and good for the environment; and
  • Some of these apps will sync with your accounting/payroll software to streamline your process even further.

The initial time you put in to build a good expense policy will pay off later on, saving your business both time and money. That’s a win-win in our books!

The start of the new year means exciting new changes for Red Granite.  Beginning January 1, you’ll also find us online at now that we’re part of one of Chicago’s most prestigious CPA firms, Ostrow Reisin Berk & Abrams, Ltd.  While we’re saying goodbye to our old website and company name soon, we want you to know that we’re still right here to serve all your bookkeeping, accounting, and strategic financial needs. In fact, with our ORBA colleagues, we’re positioned to offer you an expanded array of state-of-the-art services.  So set your sights high for 2017 and sign up to receive our latest blogs and newsletters.  Visit us today, we’re looking forward to welcoming you!

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