What is a company expense policy?
A company expense policy covers all expenses incurred by an individual during his or her employment, including travel, meals, entertainment, gifts, etc. This includes both personal and professional use. These are typically paid out of corporate funds, although some companies offer reimbursement programs. An employee must submit receipts for any expenses exceeding $25.
Companies usually have different policies for each department. For example, a policy might cover office supplies for marketing employees, while it covers equipment for IT workers. Some companies even have separate policies for different regions, such as one covering international trips.
How to create an effective expense policy
Your employees want to know how to keep track of where their money goes. They want to know how much they’re spending on business travel, meals, entertainment, etc. But most importantly, they want to know how much of it they’ll be able to claim back from you.
While there are many ways to manage employee reimbursements, one of the best practices is creating an expense policy. This document outlines the rules of the road for claiming back business expenses.
A well-written expense policy ensures that everyone knows exactly what is expected of them and how they can ensure they don’t exceed those limits. In addition, it helps prevent misunderstandings over whether something is considered a legitimate business expense or not.
Here are some tips to help you write a successful expense policy:
1. Create a template.
2. Include a section about your organization’s overall budget.
3. Provide examples of common types of expenses.
Step 1: Create clear rules across your business
If you want to make sure every employee understands how expenses work within your organization, it helps to lay down the ground rules early on. This way, everybody knows exactly what is expected of them and where to go for clarification.
For example, one client of ours had a policy that stated that no expense could be greater than $5,000. However, he didn’t specify whether the limit applied to each individual person or just the entire team. So while some people knew about the rule, others did not. As a result, many people spent far too much money and became frustrated because they couldn’t justify why they needed to spend so much.
This situation led to a lot of unnecessary stress and wasted time. And since we don’t like seeing our clients stressed out, we thought we’d help him out. We recommended that he clarify his policy and set up a system that allowed everyone to know exactly what was expected of them.
In addition to clarifying the policy, we suggested that he put together a spreadsheet to keep track of expenses. This way, everyone could see exactly how much they had spent and where it came from.
The spreadsheet helped everyone understand what was expected of them, and it also made it easier for the finance department to monitor spending. Because of this, everyone felt less stressed and more comfortable knowing that everything was being accounted for.
Step 2: Consider whether a detail-oriented or broad policy would suit your business
A recent study found that over half of small businesses don’t have a written employee handbook. This could mean that employees are operating under vague rules that aren’t specific enough to protect themselves. While some companies opt to keep things simple, others prefer to create a set of detailed policies. If you’re unsure about what type of policy works best for your business, consider asking yourself a few questions.
1. Do you offer employment contracts?
If yes, do your contracts include everything you’d like to cover? Are there any areas where you feel you might run into trouble? Would you rather write out every single rule or just make sure you’ve covered the most important ones?
2. How much does turnover cost you?
Do you think your current employees understand your policies well enough? Or do you need to hire someone specifically to help train them? Is it worth it?
3. What happens if an employee leaves without notice?
What happens if an employee doesn’t show up one day? Does your insurance cover those situations? Will you need to pay extra fees?
Step 3: Get buy-in from your employees
When it comes to managing employee expenses, there are three steps that must happen before you even think about implementing a formal policy. First, make sure you’ve set up a budget. Second, talk to your employees about how they want to spend their money. Third, get their approval. If you don’t do those things, you won’t know whether your policies are effective. And if you don’t know whether they’re effective, you won’t know if you need to change anything. Here’s why…
The most important thing to remember here is that you shouldn’t try to manage employee expenses without getting their buy-in. You could put together a great policy document, but if no one knows about it, it isn’t really doing anyone any good. In fact, it might actually be hurting people because they don’t realize they’re being charged too much for something. So, step number one is setting up a budget. Once you’ve done that, take some time to explain to your employees how you want them to use their money. Ask them what they’d like to pay for and what they’d prefer to spend their money on. Then, once you’ve got their agreement, move onto step number two.
Step 4: Pay attention to the law
Expense policies are important because they help you avoid getting into trouble. There are many different types of taxes and regulations around the world, so it pays to know what your responsibilities are. In some countries, employers are legally obligated to pay employees’ travel and accommodation costs. But in others, there is no such requirement. If you’re operating outside of your home jurisdiction, make sure you understand the tax implications of your trip. And don’t forget about national insurance requirements. You’ll want to check whether your employer needs to file a return for you, and how much he/she must charge you.
Step 5: Include details on expense payment and reimbursements
Expense management systems help employees track and pay back expenses. They’re essential tools for keeping track of travel costs, conference attendance fees, and even parking tickets. But many companies still struggle to keep track of petty cash. If you want to avoid wasting money, here are five steps to take when managing petty cash.
1. Create a Policy
First things first: You’ll need to make sure that your petty cash policy is clearly defined. This includes determining whether it applies to everyone, including contractors, or just regular employees. For example, some businesses have separate policies for vendors and internal employees. Others apply the same rules to both groups.
2. Track All Expenses
Once you’ve established a policy, it’s time to start tracking expenses. Start by creating a spreadsheet that tracks each expense. Then, enter the date, location, purpose, amount spent, and person responsible. Once you’ve done this for every single expense, you’ll have a good idea of where your petty cash goes.
3. Pay Back Expenses Promptly
Next, determine how long you plan to hold onto petty cash. Some people prefer to keep it around for weeks or months while others use it whenever they need it. Whatever method works best for you, make sure you stick to it. Otherwise, you could find yourself spending more money than intended.
Step 6: Leave room for exceptions
In our previous article we discussed how you can use exceptions to improve your team collaboration. But it turns out that exceptions aren’t just useful for improving communication within teams; they can help you strengthen relationships with customers too. In fact, according to research conducted by the Harvard Business Review, companies that allow exceptions to occur tend to outperform those that don’t.
The reason why exceptions work is because they provide clarity. When something goes wrong, exceptions give everyone involved in the process a chance to explain themselves. This helps build trust among colleagues, and it makes it easier for managers to decide whether to accept the decision or ask for further clarification.
So how do you go about creating exceptions? Here are some tips:
Be clear about what constitutes an example of an exception and what doesn’t. For example, if you want to let someone take over a project that’s due next week, that’s fine – but if you want him to finish up the current project, he needs to talk to his manager first.
Make sure your employees understand that sometimes they need to make decisions on their own. If you want your salespeople to sell more products, they can’t always count on getting approval from their boss. You might even consider giving them more autonomy.
Trust your people to make good choices. If you want your marketing department to promote a product launch, don’t micromanage every detail. Instead, focus on providing them with the tools and resources they need to succeed.
Step 7: Build in approval protocol
Expense policies aren’t just about covering costs – they’re about making sure your organisation runs smoothly. This includes things like approving travel and accommodation expenses. But what happens when there isn’t a clear protocol in place?
In our recent survey of over 300 HR professionals across different industries, we found that many organisations struggle with getting approval processes in place. So, while it might seem obvious to write down a procedure for approving expenses, we wanted to find out why people hadn’t done it already.
We asked respondents why they didn’t have a formal approval process in place and discovered that most companies weren’t even aware of whether they had one at all. And when they did try to put together a formal process, they often struggled to keep track of approvals and make sure everyone knew exactly where they stood.
Frequently Asked Questions
What should a company expenses policy include?
A lot of companies struggle to come up with an effective policy covering what employees can spend money on while working for them. This includes things like lunch breaks, coffee runs, gym memberships and even travel costs.
But it’s important that companies don’t just slap something together – it needs to be thought out carefully. Here are some key points to consider when putting together your own policy:
1. Make sure you cover everything
Your policy shouldn’t just focus on one area such as travel or meals. Instead, make sure you cover all areas where people might spend money on behalf of the company. This could include anything from gym memberships to car maintenance.
2. Be specific
Make sure you’re very specific about what types of expenses you’ll allow. For example, do you want to cover office lunches? Or maybe you want to limit it to certain days of the week.
How to claim expenses as a limited company
If you run a small business, you probably already know that running a limited company isn’t cheap. But you might not realise just how expensive it really is. Here are some of the costs involved, and what you can do about them.
The first thing you’ll want to consider is whether you actually need to set up a limited company. In many cases, you could simply operate your business as a sole trader, which doesn’t incur any additional costs. However, there are advantages to being registered as a limited company. For example, you won’t be able to deduct personal tax allowances from your profits. And you’ll have access to a range of legal protections such as bankruptcy protection.
You don’t necessarily need to register as a limited company if you’ve got a single employee working part-time. If you start paying them full-time, though, you’ll need to register as a Limited Company. This includes having to provide proof of incorporation, like a certificate of incorporation, annual returns and accounts for the previous three years.
In addition, employees need to be paid via payroll, rather than cash. Payroll deductions can be claimed as a reimbursement against your salary, meaning you don’t have to dip into your own pockets to cover them.
And finally, you’ll need to ensure that you have sufficient funds in your business bank account. This is because HMRC requires you to submit monthly VAT returns, which include a payment for any outstanding VAT due. So, even if you haven’t spent anything, you still need to have enough money sitting around to cover this.
As well as incurring extra costs, operating a limited company also gives rise to certain obligations. These include filing regular company accounts, submitting quarterly financial statements and keeping records of all transactions.
So, while setting up a limited company is often seen as a necessary evil, it does come with some significant hidden costs.