How to streamline your employee reimbursement process

Employee reimbursement procedures in many companies typically involve employees gathering receipts, creating spreadsheet reports, and submitting their requests to the finance department.

Employees often wait for their reimbursement claims to be approved, a process that can take several days or even weeks. The accounts payable team meticulously reviews each receipt to prevent any discrepancies, and approvals from various departments can add further delays.

If this sounds familiar, don't worry. This article will guide you through simple steps to streamline your employee reimbursement process.

What is employee reimbursement?

Employee expense reimbursement is a standard procedure in many companies, allowing employees to be compensated for job-related expenses. This includes submitting claims for costs such as travel, meals, lodging, and other business-related expenditures, typically requiring employees to provide receipts and documentation to validate their claims.

The importance of expense reimbursement cannot be overstated, as it significantly impacts employee satisfaction and morale. By promptly and accurately reimbursing employee business expenses, companies show their commitment to supporting their employees' well-being and financial needs.

However, managing employee expense reimbursement can be a challenging and time-consuming task for both employees and employers. The traditional method of handling paper receipts, completing forms, obtaining necessary approvals, and processing payments is often cumbersome and error prone. This approach can also result in significant delays in disbursing payments.

Is reimbursement the same as a refund?

Refund and reimbursement are often confused but have distinct meanings.

A refund is amoney returned to a customer for a purchase. This occurs when a product is returned, a service is cancelled, or repayment is due. Refunds are given directly to the customer in cash, credit, or check.

Reimbursement, on the other hand, involves repaying someone for expenses incurred they've already paid. Common in business, employees are reimbursed for travel or other work-related costs. Reimbursable expenses are processed through expense reports or reimbursement forms and paid back to the individual who made the original payment.

Are expense reimbursements taxable income?

As an employer, it's important to understand that certain employee reimbursements can offer tax benefits if they adhere to IRS guidelines for an accountable plan. This exempts them from withholding taxes and W-2 reporting. For eligibility, expenses must be reasonable business costs incurred during job duties, submitted for reimbursement within 60 days, and supported by receipts.

Additionally, any excess reimbursement must be returned within 120 days. Compliance with these conditions ensures no income tax deduction and exclusion from the employee's W-2. Leveraging services like Salary.com's Consulting service can assist in ensuring adherence to these guidelines, minimizing tax liabilities for both employer and employee.

Types of employee reimbursements

In most organizations, there are three common types of employee expense reimbursements:

• Travel and mileage reimbursements

  Travel reimbursements come into play when employees travel for business trips. Companies can prepay for some transportation expenses, such as airfare and accommodation. However, other costs like cab fares and meals often need to be covered during the trip.

  Although a per diem allowance is usually provided for such incidental expenses, employees may still incur additional costs. For local business meetings or events, employees may prefer using their personal vehicle rather than company car, and they can claim mileage reimbursements to cover gas expenses.

• Business expense reimbursements

  Sometimes employees purchase office supplies, cover meals with business partners, or pay for training programs that enhance their job performance. These costs are considered business related expenses and are eligible for reimbursement. Typically, these reimbursements are not treated as wages, making them non-taxable for the employee.

• Healthcare reimbursements

  Healthcare reimbursements are offered through health benefits like Health Reimbursement Accounts (HRA) and Flexible Spending Accounts (FSA). These employer-funded, tax-advantaged plans allow businesses to reimburse employees for medical expenses, health insurance premiums, and other qualified health costs.

Key elements of an effective reimbursement policy

An expense policy does more than outline rules; it sets the financial tone for a company. A well-created policy balances flexibility and control, allowing for the diverse needs of a dynamic business while protecting the company from unnecessary spending and potential fraud.

An effective expense policy should include these essential elements:

• Clear definitions: Clearly define what qualifies as a business expense to avoid confusion. Specify what employees can and cannot claim.

• Spending limits: Establish clear spending limits, which may vary based on role, department, or expense type. This helps create boundaries for employee expenditure.

• Approval processes: Outline the approval workflow, specifying who is authorized to approve expenses. This guarantees a structure of checks and balances.

• Receipt and documentation requirements: Detail the necessary documentation to substantiate expenses, ensuring proper record-keeping and accountability.

How to optimize the expense reimbursement process

Enhancing your employee expense reimbursement process can save time, reduce errors, and boost overall efficiency. Here are some strategies to simplify the process:

1. Step 1: Implement an automated system

   Manual processes are often cumbersome and error-prone. An automated expense management system allows employees to submit claims online, managers to approve them digitally, and finance teams to process payments quickly.

2. Step 2: Set clear guidelines

   Employers can leverage HR Metrics feature to review their current metrics and assess their impact on HR practices. Additionally, Salary consultants can benchmark these metrics against the external market and provide recommendations for improvements.

   This thorough analysis can help set clear guidelines for the company's expense policy, outlining eligible expenses and required documentation. By aligning HR metrics insights with expense policy guidelines, organizations can ensure smoother operations and strategic alignment.

3. Step 3: Simplify documentation submission

   Avoid the complexity of physical receipts by encouraging employees to use digital tools like mobile apps or email for submitting documents.

4. Step 4: Establish approval workflows

   Organization-wide Job Leveling feature helps set clear approval hierarchies for expense claims. By aligning job-leveling criteria with the compensation philosophy, fairness and efficiency are ensured. This service streamlines workflows, provides training, and supports continuous improvement for prompt claim reviews and organizational clarity.

5. Step 5: Regularly review policies and processes

   Custom Surveys service can help review and improve your organization's expense reimbursement policies and processes. By conducting tailored market pay surveys, the service provides benchmarking data to compare your policies with industry standards. It also identifies trends and inefficiencies, ensuring your organization remains competitive and efficient, supporting better decision-making and employee satisfaction.

Improving the efficiency of expense reimbursement is crucial for organizational effectiveness, financial adherence, and employee contentment. Establishing a comprehensive expense policy, and promoting transparency and accountability are key strategies for addressing typical expense management obstacles. These measures accelerate reimbursement procedures, ensure financial accuracy, reduce fraud risks, and bolster organizational confidence.

Furthermore, by utilizing consulting services offered by Salary.com, your organization can optimize policies, benchmark against industry standards, integrate technological solutions, provide training and communication, ensure compliance, and facilitate continuous improvement.