As an employer, you know that keeping your workforce happy and productive is key to running a successful enterprise.
One way to achieve this is by offeringstreamlined employee reimbursement programs that eradicate long processes and time delays.
So, how do you ensure that your business gets the most out of these programs while keeping your employees satisfied?
Here, we’ll cover everything you need to know about employee expense reimbursements.
What Is Employee Expense Reimbursement?
Employee expense reimbursement refers to the process of compensating employees for the business-related expenses they incurwhile going about their workday.
There are different types of employee expense reimbursements, including the following:
- Mileage reimbursement.
- Tuition reimbursement.
- Expense reimbursement for other business-related costs.
Having a clear policy in place is crucial to ensure the ability to reimburse employees in a timely and accurate manner.
This helps avoid common mistakes and ensures compliance with the IRS guidelines.
TIP: Use Edenred’s digital expense management tool to efficiently track and manage employee expenses while staying compliant with tax regulations and avoiding payroll tax liabilities.
What Are the Rules for Reimbursement?
How do employee reimbursement requests work?
Rules can vary depending on a company’s policy and industry standards.
Generally, a business expense must be deemed necessary for the purpose of doing a job and supported by proper documentation, such as:
- Business credit cards.
- Expense reports.
- Receipts or invoices to show proof of cost.
Reviewing your company’s reimbursement policy to ensure compliance and avoid misunderstandings is important.
What Is the Role of Reimbursement in Business?
Expense reimbursement plays a crucial role in the smooth functioning of business operations.
By offering reimbursement for expenses incurred during work, companies demonstrate their commitment to employee well-being and job satisfaction.
Leveraging technology, such as expense management tools and mobile apps like Edenred’s Claims Reimbursement, can streamline the process, making it more transparent and efficient.
Effective reimbursement policies positively impact employee satisfaction, productivity, and retention.
Why Are Employee Expense Reimbursement Policies Important?
1. Streamline Business Operations
Having a clearly defined reimbursement policy ensures consistent and streamlined procedures for reimbursing employees for business expenses.
2. Mitigate the Risk of Disputes
This policy serves as a guide for staff, outlining what is considered a business expense and what will be reimbursable expenses.
Businesses can mitigate the risk of disputesby implementing a clear employee expense reimbursement policy.
3. Always Have Updated Records
Furthermore, a defined policy facilitates effective expense report tracking and management, enabling a company to record all reimbursable expenses.
Ultimately, an expense reimbursement policy promotes transparency and accountabilitywithin an organization.
8 Common Business Expense Reimbursements
1. Mileage
Common types of expenses that can be reimbursed by businesses include mileage reimbursement for business travel.
Business meals with clients or colleagues are another reimbursable expense. Businesses often cover meals as part of their expense reimbursement process.
TIP: Give your employees a monthly meal allowance with Edenred’s Ticket Restaurant, a popular meal perk for businesses.
Costs incurred fortransportation during working hours are often considered employee business expenses.
This can cover the costs incurred when employees use their personal vehicles for work-related purposes.
TIP: Offer Edenred’s Commuter Benefits to cut commuting costs and payroll taxes.
Additionally, travel costs during business travel, such as airfare and hotel accommodations, can be reimbursed by employers.
Other reimbursable expenses may include costs related to business phone calls or internet expenses.
Employers reimburse employees for costs incurred during business entertainment activities, such as tickets to shows or sporting events.
TIP: Support your employees’ well-being with Edenred’s Lifestyle Spending Accounts.
7. Training and Tuition Reimbursement
Companies often cover expenses associated with any professional development, such as tuition fees.
Reimbursable expenses may also includebusiness supplies and equipment costs.
What Are Non-Reimbursable Expenses?
Non-reimbursable business expenses encompass variouspersonal costs that individuals shouldn’t expect to be reimbursed for such as:
- Phone bills.
- Meals and entertainment.
- Travel expenses.
- Commuting and purchases, like personal clothing, are typically not eligible for reimbursement.
- Car expenses incurredoutside of work are generally not eligible for employers to reimburse.
Employees can effectively manage and track their own money spent on non-reimbursable business expenses bybeing aware of what an employer pays for and what an individual will have to cover out of pocket.
This also helps avoid any misunderstandings or discrepancies in an expense report.
Setting Limits for Expenditure and Reimbursements
Establishing limits for expenditure and reimbursement is essential for controlling costs and maintaining budgetary discipline.
When determining reimbursement limits, it’s important to consider the expense type, company policy, and the Fair Labor Standards Act (FLSA).
Finding a balance between ordinary and necessary expenses is crucial in setting these limits.
It’s advisable to regularly review and adjust reimbursement limits to ensure they align with today’s costs and business goals.
Taking these steps will help a business effectively manage its expenses and optimize employee reimbursement.
How Do You Determine Reimbursement Limits?
One crucial aspect of determining reimbursement limits is identifying the expensesthat will be eligible for employer reimbursement.
Moreover, it’s essential to consider industry standards when setting these limits, considering factors such as:
- The cost of living.
- Travel expenses.
- Business-specific requirements.
Evaluating the costs employees are likely to incur during a workday can also help establish reasonable limitson reimbursement expenses.
By carefully considering these factors, businesses can effectively determine reimbursement limits without exceeding their budgetary constraints.
Why Are Spending Caps Important?
Setting spending caps promotes expense control and prevents overspending. This helps businesses manage their cash flow effectively.
By implementing spending caps, businesses can ensure that employees spend company money responsibly.
Spending caps also help businesses avoid financial strain by setting appropriate limits. Spending caps can be utilized on a per-annum or per-diem basis.
By doing so, businesses can maintain control over expenses and make informed financial decisions.
There are several places where spending caps are commonly given to employees:
- The cost of meals when traveling.
- Car expenses.
- Cell phone expenses.
- Tuition reimbursement.
These all often fall under a set amount.
What’s the Difference Between Accountable and Non-Accountable Plans?
In an accountable plan, employees are required to report their business expenses, whereas in a non-accountable plan, reporting is not necessary.
While an accountable plan offers tax benefits to employees, a non-accountable plan may result in taxable income.
By understanding the differences between these two types of reimbursement plans, employers can effectively manage employee expenses and maximize tax savings.
An accountable plan, a type of reimbursement plan, requires employees to provide documentation for expense reimbursement within a reasonable period.
These plans track and reimburse expenses an employee incurs on behalf of the company andonlyreimburse employees for business-related expenses.
Complying with the Fair Labor Standards Act (FLSA), an accountable plan ensures expenses are business-related.
Unlike standard amounts, employees are then reimbursed based on their actual expenses. This type of plan is commonly used by businesses and helps them stay in line with IRS regulations.
KEY TAKEAWAY: Accountable plans simplify the expense reimbursement process and promote visibility and accuracy.
What Are Non-Accountable Plans?
One of the key features of a non-accountable plan is employees are not required to substantiate their expenses.
Unlike accountable plans, in non-accountable plans, an employer reimburses their employee regardless of the business purpose of their expenses.
This may result in employees having to pay taxes on their reimbursements.
Additionally, non-accountable plans don’t track expenses to ensure they’re business-related and may even reimburse employees for personal expenses.
KEY TAKEAWAY: Non-accountable plans offer more flexibility but come with potential tax implications.
Tax Implications of Reimbursements
Reimbursements for business expenses are typically not taxable income for employeesunless they are part of a non-accountable expense reimbursement plan.
In the case of accountable expense reimbursement plans, reimbursements are considered tax-free.
Businesses can deduct reimbursements as business expenses for tax purposes, providing them with potential tax benefits. Employers must report reimbursements of employee expenses on tax forms, such as the W-2.
Understanding the tax implications of different reimbursement types is crucial for employees and employers to ensure compliance with tax regulations.
Taxability of Reimbursements and Payments
It’s important to consult the IRS guidelines to determine the taxability of reimbursements. Proper documentation of expenses incurred is also essential for tax purposes.
1. Non-Taxable Employee Reimbursements
- A maximum of $5,250/year for educational costs.
- Any accommodations or food given on the work site.
- Trophies, awards, or gifts of a certain value that conform to IRS guidelines.
- Up to 20% off employer-provided services or goods.
- Particularinsurance premiums.
- Services for retirement planning as part of a set retirement plan.
- Money for commuter-related benefits like carpooling, group vans, parking, or transit passes.
2. Reimbursements Taxable for Employees
- Provided Services: If the business offers employer-related services like legal or accounting, the cost of these services should be reported as wages or salary.
- Prizes and Trips: The fair market value of a gift, prize, or trip should be reported along with an employee’s salary.
- Using a Company Car for Personal Use: When an employee uses a company car during their personal time, the associated costs may be subject to taxation.
Do Employee Reimbursements Go Through Payroll?
Expense reimbursements can be processed through payroll and given along with an employee’s wages or as a separate payment.
- Processing reimbursements through payroll simplifies the process and ensures accurate record-keeping.
- Reimbursements outside of payroll may require additional documentation and approval processes.
NOTE: Consult with your HR or accounting department or the experts at Edenred for the best method to process claims reimbursements.
The Benefits of Edenred’s Claims Reimbursement
We think you’ll love Edenred’s Claims Reimbursement program!
Here’s why:
- It’s a time saver for HR workers who manage this process manually, making it far easier to reimburse employee expenses.
- It increases the compliance of the process, as it’s based on a 100% receipt audit.
- Since it’s an AI-based process, you’ll have the ability to set automated parameter controls to open more types of benefits expenses.
- It’s convenient for employees. Tracking work-related expenses couldn’t be easier! They simply upload receipts and can track the reimbursement progress through the Edenred mobile app.
What are you waiting for? Enhance your employee benefits package by scheduling a meeting with us today.
