Expense Management Policy: Definitive Guide [with Free Template]

Any company with employees who incur expenses must have a solid policy in place to govern these costs. Even the organization that has just a handful of employees racking up expenses needs a guide to explain what is or isn’t reimbursable. By developing an expense management policy, and then adjusting it as needed as your company grows, you’ll be able to keep costs manageable while also keeping your employees engaged and productive.

What Is a Company Expense Policy?

An expense policy is a formal set of guidelines that clearly outlines exactly what is and isn’t an approvable expense. It also helps the accounting department and/or approvers quickly decide whether an expense is reimbursable or not.

This policy clearly outlines exactly when employees can expect to be reimbursed for their expenses (typically 30 days or less, depending on the company) and any recourse they have if an expense is rejected.

Benefits of an Expense Policy

One of the best ways to control employee spend is to implement an expense management policy that everyone in the organization will follow. That way, when an expense is rejected or questioned, your policy will serve as a standard for making final decisions on whether to reimburse the costs or not.

An expense policy also:

• Standardizes rules for a company’s expense management.
• Prevents employees from claiming they “weren’t told” that they wouldn’t be reimbursed for a specific expense.
• Helps employees familiarize themselves with the rules and know in advance whether the purchase that they’re making is going to be reimbursed.
• Gives approving managers a guidebook to work from (versus having to ask about every “questionable” expense).
• Helps prevent financial fraud and identify when an employee is abusing the system.

7 Steps to a Successful Expense Policy

Follow these seven steps when developing your company’s expense policy:

1. Determine which expenses will and won’t be reimbursed, as well as whether or not a company credit card is required.
2. Be as specific as possible when outlining these expenses (e.g., if you aren’t covering first-class airline flights or are capping hotel rates at a specific threshold, include these points in your policy).
3. Outline the authorization process, including who the approvers are, what the reimbursement schedule is, when pre-authorizations are required, spending thresholds and so forth.
4. Be sure to incorporate best practices like requiring pre-approvals for certain expenses, clearly defining the approval process steps, or other elements that can help minimize potential problems when submitted expenses are flagged.
5. Once the policy has been created, share it with all employees, managers and senior executives who will be involved in the spending, approval or reimbursement process. Ensure all employees can access the policy at any time. The expense policy should be part of the employee onboarding process and it should be made available through the company’s intranet or other easily accessible location.
6. Ask for feedback from leadership on your first draft and then incorporate any appropriate changes into your final draft.
7. Update your expense management policy regularly. As your company grows and expands into new lines of business, this policy will need to be adjusted to accommodate those changes. Any changes to the policy must be clearly communicated to all employees.

What Should an Expense Policy Include?

All expense management policies should include:

• A complete list of which expenses the company will pay for: Make sure your list includes (but isn’t necessarily limited to):

  • Hotel accommodations
  • Transportation expenses
  • Mileage reimbursement
  • Food/drink costs
  • Any rules concerning alcohol
  • Entertainment expenses
  • Business-related items (i.e., subscriptions, electronics, equipment, etc.)
  • Any other miscellaneous expenses (i.e., postage, birthday cakes for employees, etc.)
  • Special considerations when traveling outside of home country
  • Variations in policy for different roles and management levels

• Specific budgets for each type of expense (e.g., travel, supplies, food, etc.): If your budgets fluctuate throughout the year, use this section to provide general guidelines or ranges that employees can use as a reference.

• Explanations around preferred providers: Ensure employees understand the rules around when employees must use preferred hotels, airlines, rental car companies or other providers and when there is flexibility. Be clear about how and when exceptions are allowed.

• Very clear and concise language: Write the policy in a way that leaves no question about what is or isn’t admissible.

• Any and all expenses that the company isn’t willing to pay for: Expect this list to grow over time, as employees’ expense reports are questioned or rejected. If you’re regularly updating your policy, you can simply insert these ineligible expenses into a new section outlining what’s not covered.

• Specific instructions for claiming expenses: Outline the process, any deadlines (e.g., submit all expense reports by the last day of the month when they were incurred), or other details employees need to follow to get reimbursed.

• Your policy on cash advances: Determine whether you will or won’t be giving out cash advances. If you are, be sure to include the specific steps that someone has to take in order to get the advance (and, how to report/return any excess funds from that advance).

• The reimbursement process: Provide details on when employees can expect to be repaid, how they’ll receive their money, and what steps they need to take if one or more items on their expense reports are rejected.

• Company-issued credit card rules: If your business provides corporate credit cards for employees, the expense policy needs to include language around if and when cards can be used for personal purposes, repayment policies and whether personal credit cards can be used to pay for expenses.

Expense Policy Example

Here’s a basic outline that you can use to create your company’s expense policy.

1. State the purpose of the policy:

   For example: This expense policy applies to all employees that are reimbursed for work-related expenses.

2. Detail what the policy covers:

   • Business travel
   • Accommodations
   • Meals
   • Entertainment
   • Conferences, training and education
   • Office supplies and equipment
   • Miscellaneous expenses
   • Additional/relevant expenses

3. Detail what the policy does not cover:

   • Personal purchases
   • Expenses incurred by non-employees
   • Meals and entertainment associated with unauthorized travel or events
   • More than two alcoholic beverages per day
   • Tickets for concerts or sporting events unless part of a pre-approved event with prospects/customers.

4. Outline the employee expense reimbursement process:

   • This is where you will outline the steps that workers must take in order to be reimbursed in full or in part for their expenses.
   • Detail the approval process and who must be involved in it.
   • Include the timelines for reimbursement.

This sample is meant to be a guide for creating your own policy. Once you begin to outline your expense management policy, you’ll want to customize it to include all of the relevant points and address any potential issues related to your own operations.

Top Expense Policy Problems to Avoid

Properly managing and tracking employee expenses is an important task for any business because it impacts cash flow, taxes and finances. When properly developed and executed, an expense management policy provides a guideline for the employee and a safety net for the company.

When a company doesn’t take the time to develop this important policy, it can lead to problems like:

• Cash flow issues: In a world where 20% of all employee expenses violate company policy, the policy needs to be bulletproof. When employees have “free reign” to spend as they see fit, the list of unaccountable expenses will accumulate quickly. This can create major cash flow problems.
• Confused managers and senior executives: Without a guide to follow, your managers can’t make good decisions about approving or rejecting employee expenses. They’ll either just go with their gut or make repeated calls to accounting for help. You can cut down on this confusion by clearly laying out the expense management rules in a corporate policy that’s shared with the entire team.
• Expense fraud: Employees may lie about expenses. No one wants to think the worst of their valued team members, but financial fraud does happen and companies should be aware of their vulnerabilities. When the rules governing employee expenses are blurry or undefined, the opportunity to commit fraud can increase dramatically. In some cases, simply knowing that someone has laid out rules and is enforcing them can reduce the chances of expense fraud.
• Poor tax management: The IRS Rules for Expense Reporting outline exactly what qualifies as a business expense, what a complete record is, how to keep those records and which expenses qualify for a tax deduction (see IRS Publication 535 for more information). Without a clear policy in place for managing these expenses, you run the risk of making mistakes on your taxes and possibly even triggering an IRS audit. (Talk to your accountant for more details on this and to see what else you need to do to ensure tax compliance.)

6 Key Expense Policy Best Practices

Your company’s expense policy will serve as a signal for the employees who incur the expenses, the managers who approve or reject them, and the accounting personnel who process them. Because it will impact so many aspects of your organization, you’ll want to take the time to put together a policy that meets the needs of your company and your people.

Here are six best practices to use when developing your company’s expense policy:

1. Understand the legal and tax implications of your policy. Review any state and federal laws governing expense reporting and reimbursement. Make sure your policy aligns with these laws. Take a similar approach with tax laws, knowing that there are strict policies concerning which expenses can or can’t be deducted on your business tax return.

2. Ask your employees for input. If this is your first time putting together a policy, and if you’re not sure what to include in it, ask your employees for input. What would make the process easier for them? What needs to be more clearly stated? Where have they run into problems with filing expenses in the past (either at your firm or a previous employer)? Use this input to create a policy that meets everyone’s needs as much as possible.

3. Talk to senior managers about the new policy. Instead of just springing the new rules on managers and executives, get them (and other approvers) involved in the policy development process. Like your employers, these associates have probably had to follow similar guidelines in past positions and can share both the good and bad with you. Again, use these insights to guide your own policy development.

4. Keep it simple, but address all of the important issues. This will be somewhat of a balancing act, but your goal should be to keep the policy as simple as possible while hitting on all of the key points. Be concise and use as few words as possible without leaving too much up to interpretation.

5. Don’t bury the policy in your corporate paper pile. The whole idea behind this exercise is to create an expense policy that all interested parties can read and refer to as needed. Once the policy is completed, distribute it electronically and encourage employees to read it and provide feedback. If this is your first draft of the document, you can use that feedback to tweak your policy before finalizing it and making it part of your overall corporate rulebook.

6. Automate your expense management process. A process that used to be largely handled using paper receipts and spreadsheets, expense management has benefited significantly from technology. Workers can use their smartphones to easily upload their receipts and get them into the expense management workflow. Once in the accounting system, those expenses can be automatically routed to the right people for approval, flagged or prepared for payment. Automating the expense management process is a best practice that many companies have embraced, helping them save time and money while reducing the potential for errors and fraudulent transactions.

Free Expense Policy Template

Our free expense management policy template will help you create an expense management policy to serve as guidelines for what employees can expect to be reimbursed for.

Expense management software can help you maximize the accuracy and timeliness of expense reporting and overall expense management; this process should be as easy and flexible as possible for users and connect directly with project management and project accounting.

NetSuite Expense Management offers powerful features that improve productivity, enable better tracking and compliance, maximize the accuracy and timeliness of expense reporting and enhance the overall experience.