What is employee reimbursement?
Employee reimbursement, also called expense reimbursement, is a company’s process for repaying workers for personal money spent on business-related items. The employee presents documentation, such as receipts, and the company offers financial compensation.
Typically organizations have an employee reimbursement policy that details covered expenses. Commonly covered expenses include travel, meals, mileage, office supplies, and continuing education.
Expense management software lets employees input their own spending and documentation. It helps companies manage the reimbursement process. Companies also analyze spending and find opportunities for cost-saving measures with this software.
Expenses eligible for employee reimbursement
Although reimbursement plans vary, there are several common categories of eligible expenses. These categories include:
- Travel expenses: Travel is one of the most frequent business expenditures. It’s a collection of costs: taxis, flights, hotel rooms, tips, and meals. Most fees related to travel are eligible for reimbursement.
- Office supplies: When a team member is in a pinch and has to pay for staplers or a ream of paper out of pocket, companies typically compensate the employee once they obtain a receipt.
- Meals and entertainment: Organizations don’t want to foot the bill any time an employee dines out, but there are times when meals and entertainment are part of the job. In sales, for instance, a meal with a potential client can help close a big deal – and be categorized as a business expense.
- Transportation: Workers sometimes receive reimbursement for mileage when they use their personal vehicle to drive to a work-related function. For example, a home health physical therapist might get compensated based on mileage for driving around to see patients.
- Healthcare: Some companies offer a health reimbursement arrangement (HRA). Not to be confused with a health reimbursement account, a health reimbursement arrangement lets employers reimburse their workers tax-free for medical expenses.
Benefits of an employee reimbursement policy
When a company takes the time to create a well-defined reimbursement policy as part of their benefits administration plan, the result is clarity and reduced stress for both the employer and employee. Some additional advantages include:
- Boosting employee satisfaction: No one wants to worry about complicated receipt submission processes and long payment delays. When employees know there is an easy-to-follow process in place for reimbursement, they can feel more relaxed about initially using their own money for business expenses.
- Increasing productivity and efficiency: Having a clear policy saves time for human resources and finance teams and also increases workers’ productivity. For example, instead of spending the morning to get reimbursed for a recent trip, an employee can focus on hitting monthly sales goals instead.
- Building trust: A good expense reimbursement policy tells employees upfront what they can and cannot spend money on. A company might balk if an employee books a week-long stay at a five-star resort for a business trip. Meanwhile, an employee might be upset if they book the trip not realizing that five-star resorts can’t be reimbursed. A clear policy provides boundaries that help establish trust that runs both ways.
Employee reimbursement best practices
When considering how to clarify expense reimbursement within an organization, it’s best to create a plan. Some best practices for developing a policy include:
- Setting time limits. It’s important to set restrictions on the length of time an employee has to submit for reimbursement, but also consider whether the company will have a grace period or late policy if too much time passes.
- Specifying documentation requirements. Some companies need a receipt for all expenditures. Other organizations set a threshold. For example, they require receipts for any expense greater than $50.
- Requiring approval: Reimbursement fraud is unfortunate, but it does happen. Establishing and following an approval policy can help – as can conducting annual audits to look for anything out of the ordinary, such as fake or altered receipts.
- Automating when possible: Software can help streamline the steps of the reimbursement process. With some tools, workflows can be set up to automatically send forms to two people for approval. Plus, settings ensure users have attached appropriate documentation before a form is sent to HR, saving time and hassle.
Kelly Fiorini
Kelly Fiorini is a freelance writer for G2. After ten years as a teacher, Kelly now creates content for mostly B2B SaaS clients. In her free time, she’s usually reading, spilling coffee, walking her dogs, and trying to keep her plants alive. Kelly received her Bachelor of Arts in English from the University of Notre Dame and her Master of Arts in Teaching from the University of Louisville.
