In the normal day-to-day business operations of a company, there is a need for the occasional out-of-pocket spending by an employee. This need is increased when your employees travel, host events, or work closely with customers. Do you have a plan to effectively manage employee expenses and reimbursement? 

Without a solid expense policy, employees can be loath to spend on the company’s behalf—or they may spend with abandon, assuming it will be reimbursed in full. The company can lose track of spending, encounter unexpected employee expenses after the fact, and end up with unhappy and untrusting employees. A proper expense policy and reimbursement plan can solve these problems, and today we’ll show you how.

What is an expense reimbursement policy?

A business expense reimbursement policy is a set of rules or guidelines for paying back employees when they spend their own money for the company. Your company reimbursement policy can include approved expenses, expense budgets, how expenses are documented and submitted, and how employees are paid back for their out-of-pocket expenses. 

A reimbursement policy protects both employees and the company from misuse of funds and lack of trust. A well-executed policy will reimburse employees in a timely manner and help the company stay on top of budgets and books without the unpleasant surprise of owing an employee extra money. 

Your reimbursable expense policy should outline: 

  • Who can spend for the company
  • How much they can spend
  • What they can spend money on
  • How to document expenses
  • When they’ll get reimbursed
  • How they’ll get reimbursed
  • What happens when expenses aren’t authorized

How to create an expense reimbursement policy

An expense reimbursement plan is best formed with the teamwork of finance, HR, and operations organizations within your company. There are stakeholders throughout the company with a vested interest in an effective expense policy, so carefully work together through the following steps to create a policy that makes sense for you. 

  • Reimbursable expenses: first decide which expenses will be clearly outlined as acceptable, reimbursable expenses. The list needs to be explicit and exhaustive to protect the employees and the company. It can be useful to have departments submit expenses they deem necessary but remember—this policy is for reimbursements, so it should only include expenses for which a corporate card or account could not have been used. 
    • Travel: for most companies, travel is the most common driver of out-of-pocket spend. Flights and hotel accommodations are usually handled by a travel department and put on a company card, but what about per diem and random expenses? Will the company reimburse for taxis, food, coffee, checking bags, etc? Start with your corporate travel policy, then walk through each travel expense that employees submitted for the last several business trips. Don’t forget to consider mileage reimbursement (the mileage rate for 2020 is 50.5 cents/mile).
    • Accountable plan expenses: An accountable plan is one that follows IRS guidelines for reimbursing employees and where reimbursements are not counted as taxable income. Accountable plans have the following requirements:
      • Expenses are business-related
      • Expenses are reported in a timely fashion
      • Excess reimbursement is returned to employer
  • Non-accountable plan expenses: In the past, employees could claim some business expenses as deductions on their taxes if they weren’t reimbursed for them. In 2017 the Tax Cuts and Jobs Act removed these deductions, but allowed businesses to compensate by offering non-accountable expense plans. Businesses that provide employees with an “allowance” that can be used as employees see fit would fall under a non-accountable plan, which would then be subject to taxes like income. 
  • Examples of reimbursable expenses
    • Entertainment & meals for clients
    • Employee lunches
    • Employee gifts or rewards
    • Office supplies
    • Office holiday decorations
    • Mileage
  • Pre-approval: a need for pre-approval may depend on the type, magnitude, and origin of the business expense. Determine whether your employees will need pre-approval from managers every time, or for purchases over a certain threshold. Do they need verbal or documented approval? Consider workflow between employees, managers, and finance teams. 
  • Expense reports: how will employees record their expenses on behalf of the company? Most companies require receipts, but more clarification is usually needed. Are screenshots acceptable? Physical receipts? Photos of paper receipts? Bank statements? A total on its own can be misleading, so decide if you need description of items, vendor, date, and time on each receipt. This data is hard to get after the fact, so be sure it’s outlined explicitly in advance. Expense reporting software can auto-populate this information and send it immediately to approval parties. 
  • Reporting process & deadlines: consult with finance teams to choose a reporting process and deadline for submitting reimbursable business-related expenses. Will you need forms? Who will need to sign off? What route will the expense report take through the company? What is the acceptable window for submitting requests for reimbursement?
  • Reimbursement: finally, how will your employees eventually be reimbursed? The finance teams will need to choose a method for paying back employees, such as a check or adding it to their next paycheck. Consider the length of time each method will take to return funds to the individual.
  • Disputes & limits: what will you do when an employee submits an expense report for unapproved purchases or purchases over budget? What will you do when you suspect dishonesty or error in an employee expense report?


It is vital to think through every moving piece of the reimbursement process and gather insight before writing up an expense reimbursement plan for your company. Documentation is an equally critical element to your reimbursement policy, since multiple parties will need to refer back to it frequently. 

Things to consider for documentation

Definitions: no matter how clear you think your terminology may be, you must explicitly define each and every term and expectation. Does travel mean by plane, train, and automobile? What about renting scooters or bikes in the city for transportation? Does receipt mean physical or electronic? 

Expense report beta test: once written up, have an employee with an expense report walk through it step-by-step. Ask them to note confusing or redundant directions so you can refine the language and parts of your policy before launching. 

Accessibility: each and every employee needs access to the reimbursement policy. It should be posted in your workplace wiki, but a downloadable, application, or cloud-based document is necessary for on-the-go reference.


While the documentation may be completed, it is recommended to fine-tune the roll-out of any new employee reimbursement plan.

How to implement your employee reimbursement plan

Small group beta test: select a small group of employees to run a beta test of your new expense reporting system. Real business-related expenses (a client lunch) or a practice expense (coffee for the team) can be used to test the reimbursement policy. A good system can respond to feedback with iterations that better meet the company’s needs. 

Announce: when you feel confident in your reimbursement plan, it’s time to announce it to the company. We recommend sharing the written policy with a brief summary via slack or email with a link to the permanent location and indicate where employees should direct their questions. 

Training: In your next company-wide meeting or via online training, provide clear training for every employee, especially regarding pre-approvals and what documentation is needed to submit for reimbursement.

How to reimburse employees

When it’s time to actually reimburse your employees—how will you get their money to them? Your choice will depend on the frequency and total of your average reimbursements, as well as the amount of time it will take your accounting team to manage each option. 

  • Payroll: likely the easiest and fastest choice, you can simply add a line item of reimbursement to their payroll check so they are reimbursed by the next pay period. If they are accountable plan expenses then they are added without the income tax. 
  • Checks: the accounting team can cut checks for individual reimbursement either by expense report or once a month.
  • Reimbursement software: If you already have an expense management platform, you can process reimbursements automatically. Most platforms, like Divvy, will reimburse employees in just a few clicks through ACH or payroll, etc.


For any good reimbursement plan to work, businesses need careful enforcement. Unfortunately most companies experience occupational fraud from employees. You can mitigate issues by creating an exhaustive and explicit expense policy and preparing beforehand with consequences for abuse. 

Fraud: Business expense fraud committed by employees is estimated to cost U.S. businesses more than $2.8 billion per year, according to a recent survey by Chrome River. There are six types of expense fraud, from fictitious expenses to altering receipts. You can prevent this fraud by requiring careful documentation of itemized receipts, or utilizing business expense software to minimize falsified documents or alterations. 

Overspending: More commonly you’ll be dealing with employee overages. When an employee spends $50 on a client lunch without understanding that the reimbursable amount is only $40, what will you do? Reimbursing that extra $10 to the employee might not seem like much, but it can add up over time and send the message that budgets are mere suggestions. Instead set the precedent that spending will only be reimbursed up to the allowable limit. Virtual cards can help you set enforceable budgets that cannot be exceeded to help avoid this problem. 

Look at your reimbursement plan as a way to build trust and mutual benefit between employee and employer. We hope following these steps will provide you with the tools you need to spend a little smarter.

Whether you’re a growing small business needing to develop expense policies for the first time, or a mature company looking to fine-tune your reimbursements for maximum efficiency, you can do it all with Divvy’s expense reporting and reimbursement software. See Divvy in action today.

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