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How to Reimburse Employees for Travel Expenses

If you have employees who travel for work, you must know how to reimburse employees for travel expenses. Don’t worry–it’s not as tedious as you think.

With all the tasks and responsibilities that finance managers deal with every day, it’s understandable if they find the reimbursement process tedious. However, there’s no escaping this task as employees must be rightfully reimbursed for corporate travel expenses. In this blog, we discuss how to reimburse employees for travel expenses.

What Is an Employee Reimbursement Policy?

An employee reimbursement policy is a detailed structure that defines the rules and procedures for employees who seek reimbursement for work-related expenses. With an employee reimbursement policy in place, the company can set out the limits and expectations of these expenses.

Are Employers Required to Reimburse Employees for Travel Expenses?

While the Fair Work Act 2009 doesn't explicitly require reimbursement of work-related expenses, Section 325 states the following:

“An employer must not directly or indirectly require an employee to spend, or pay to the employer or another person, an amount of the employee’s money or the whole or any part of an amount payable to the employee in relation to the performance of work, if:

 (a) the requirement is unreasonable in the circumstances; and

 (b) for a payment—the payment is directly or indirectly for the benefit of the employer or a party related to the employer.”

Since a work-related travel expense is done to accomplish a work objective, it’s most definitely for the benefit of the employer.

Moreover, Section 325 protects employees from paying for items that the employer should be responsible for. Common work-related travel expenses include flights, meals and accommodation.

Employee Travel Expense Reimbursement Guidelines

An employee reimbursement policy must guide and protect the employer as much as it guides and protects the employee. The tips listed below can help establish fairness between both parties.

1. Set clear expectations and spending limits

The last thing you want is to have employees requesting reimbursements for items that are not work-related, such as gifts and souvenirs for loved ones back home. To avoid expectations like that, be clear with the spending limits and the benefits they can avail. Indicate in the policy when certain items are not covered so they can manage their expectations.

2. Track the employee’s expenses

Since you’ll be reimbursing their work-related expenses, keep a file of itemised receipts so you can validate what they paid for. It’s important to track their travel expenses to determine how much you should allocate for company travel.

3. Establish a schedule

In addition to establishing expectations, you should also establish a schedule. This goes for both employees submitting their claims and the employer reimbursing the employee expenses. Establish a deadline for submissions, typically no more than 60 days after their trip. There should also be an established timeline for when expenses can be reimbursed to develop trust between the two parties. 

4. Be fair

It goes without saying that employers shouldn’t implement rules on one employee and make exceptions for the other. Once you’ve established the employee reimbursement policy, be sure to uphold that for all employees.

Having all employees follow the same policies and procedures is an ethical practice that avoids having anyone take advantage of an honest system.

5. Create conditions for the reimbursement policy

An employee reimbursement policy qualifies as an accountable plan if it meets the following conditions:

        • The employee incurs the allowable expense while they’re travelling for work or performing services for their employer. The reimbursement will then be applied to the expenses. It must not be something that would have been part of the employee’s salary.
        • The employee provides proof of the business expense. Such proof must include the amount, when and where it was incurred, and its purpose.
        • The employee pays back any excess of the reimbursement if the employer reimburses more than the employee spent.

6. Record reimbursements

Record reimbursements through an expense platform where you can input the following:

        • Employee’s name
        • Period covered
        • List of reimbursable expenses
        • Amount of each expense
        • Purpose of each expense
        • Total amount for the period

7. Automate where possible

Many automated systems allow employees to submit expenses and receipts on the go, thus increasing convenience and encouraging timely submission of expense reports.

With automated systems, both the employee and employer can track the status of expense reports in real time, which reduces the need for status inquiries and provides greater visibility into the reimbursement process.

What Is the Best Way to Reimburse Employees for Expenses?

As long as you keep accurate and detailed expense records, there’s no hierarchy on which of the two methods is better:

      • Integrated into the payroll system — You can include the reimbursement together with the employee’s payroll. Note that the reimbursement is not part of their salary but must be reflected in their payslip.
      • Check or direct deposit — You can pay employees separately by giving them a check or directly depositing the amount to their bank accounts.

Either of these two methods is fine as long as the reimbursement is done efficiently and on time.

Are Employee Reimbursements Taxable?

The Australian Tax Office explains that if an employer reimburses the expenses that the employee incurs, the employee:

      • Must not include the reimbursement as income in their tax return
      • Cannot claim a deduction for them
If an employer reimburses the employee for their work-related travel expenses, the reimbursement is not tax deductible. The employer can claim them as a tax deduction themselves.

When it comes to reimbursing employees for travel expenses, automation emerges as the most efficient method for tracking. An expense management platform helps companies streamline the reimbursement process and enhance transparency for both the employee and the employer. With automation, both parties can be sure of the accuracy and compliance with policies and regulations. Employees also feel empowered as they go through a seamless reimbursement experience.

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