Eddy’s HR Mavericks Encyclopedia
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Employee Reimbursement
Employee reimbursement can get confusing. Can you reimburse for business-related travel and meals while traveling, or is that wrong? Are there tax implications for employees or the business? Read on to navigate through these questions and find out more.
What Is Employee Reimbursement?
Employee reimbursement is when an employer pays the employee back for personal money spent on an approved business-related expense. If your employee used their own money to purchase something deemed a business expense, you should reimburse them that money so they don’t have to pay for it out of pocket.
Why Is It Important to Manage Employee Reimbursements Correctly?
It's important to manage reimbursements accurately and clearly.
- Appropriate reporting. Employees shouldn’t have to report these reimbursements as income, so ensuring proper management of this is critical. These are expenses on behalf of the business, so employees should not be taxed on the reimbursement.
- Accurate records. You need to evaluate your expenditures year over year to ensure you’re allocating the appropriate amount of money to each expense category. Without proper employee reimbursement management, it will be impossible to ensure you’re budgeting correctly.
- Spot false reimbursements. While your organization may not run into false reimbursements, managing this process thoroughly will help spot inaccurate requests and avoid paying for non-business related expenses.
Types of Employee Reimbursement
Let’s look at common categories for employee reimbursements you may want to include in your policy and your accounting.
Travel Expenses
Your employees may not travel regularly for work, but having a category for business-related travel expenses is still a good idea. What about when an employee is on a sales trip for work? That could require travel by air, car, or public transportation, and you’ll want to ensure you keep track of those expenses accordingly. When it comes to travel expenses, it’s best to qualify all business-approved expenses in this category for the same trip. For example, if your organization has a policy to reimburse traveling employees for all meals, have the employee keep all receipts for the trip and request reimbursement according to your company policy. If meals are not included, be sure to articulate that to the employee prior to the trip to avoid confusion.
Office-Related Expenses
Whether your employees work in the office, from home, or use a hybrid model, there will be office expenses. This is a common reimbursement for every company. Decide whether you want to allow employees to submit items for reimbursement that they purchase for their home office, and include that in your company policy. If your employees buy things like fax machine maintenance supplies, paper, staples, printer ink, extension cords, and even the hand soap in the break room, they should be reimbursed. Things that keep the office running smoothly will be coded under this expense.
Training and Education Expenses
When it comes to training, it’s often good to have a separate category. While there may be travel involved in the training and your organization may choose to separate that into travel expenses, it’s good to have a training and education category. Based on the numbers you analyze from your expense reports, your organization can monitor this over the years to evaluate some sort of cap on educational expenses, or perhaps provide a company perk of X amount of money for training and continuing education as an employee benefit.
Miscellaneous Expenses
While most companies want to detail every expense, you’ll likely run into miscellaneous expenses when it comes to employee reimbursements. Perhaps you have a one-off reimbursement that you approve for an employee—say they buy lunch for the office— but it doesn’t happen often enough to have its own category. Those reimbursements may be coded as miscellaneous expenses. Be as specific as possible when requesting the information from the employee for reimbursement so you can protect the organization from risk and effectively evaluate what the reimbursement was for in the future.
Legal Requirements for Employee Reimbursement
When it comes to legal requirements for employee reimbursement, there are a few specifics to be aware of. Let’s review them below.
FLSA Requirements
The Fair Labor Standards Act (FLSA) regulates employee reimbursement when it cuts into employee's pay at a certain level. FLSA establishes the minimum wage and overtime pay that employers should pay their employees. While employers are not required to reimburse employees for non-business or business-related expenses, if the expense takes their pay below the minimum wage and overtime requirements established by the FLSA for non-exempt employees, they must be reimbursed. For example, if your non-exempt employee is making $800 gross for your bi-weekly payroll, and they are required to purchase a new laptop for work that runs them $500, this puts them below the minimum wage threshold, and reimbursement is required. Should the same employee have a need for a keyboard mouse that runs them $30, FLSA would not require reimbursement to the employee because the $30 does not lower their gross pay to under minimum wage. It’s important to note here that while the law may not regulate all expenses to be paid to the employee, it’s good for your organization to remain consistent and reimburse all employees for any approved, reasonable business expense they have.
Deadline to Report and Reimburse
FLSA also establishes a timeline on when employees should receive this reimbursement. Should the expense reduce the employee’s pay below minimum wage, the reimbursement must be made no later than the next payday so no undue hardship comes to the employee who pays for business expenses. Best practice would be to follow this process for all employee reimbursement, paying them in the next applicable payroll or within 30 days of paying for the expense. Individual states may have additional requirements; be sure to check reimbursement laws for your state(s).
How to Develop an Employee Reimbursement Policy
Now that the legal ramifications have been covered and the common reimbursement categories reviewed, let’s dive into how you can develop a reimbursement policy for your organization.
Step 1: Establish Reimbursable Expenses
First, establish the items your organization deems as approved expenses. Can your employees submit for reimbursement if they had to buy post-it notes for their home office? Do you allow employees to submit their meals on the plane for reimbursement, or just the flight itself? Be sure you are qualifying the reimbursements that make sense for your organization and that they are consistently applied.
Step 2: Evaluate How to Reimburse Employees
Before you can establish how you want employees to submit claims, you’ll want to decide the best process to reimburse them. Would reimbursement through payroll be the easiest for your organization, or do you prefer to keep payroll separate and pay for reimbursements through a monthly direct deposit or check? Look for a system that would be easy for your organization to administer and for your employees to follow.
Step 3: Create a Procedure
Next, and potentially the most important, is to establish a policy and procedure for your employees to follow. Clearly define what are approved employee reimbursements, where to submit them, what should be included in the submission, and the deadline. Provide your employees with a step-by-step process of how to effectively submit employee reimbursements for approval. This not only keeps the administrative workload of the reimbursements light but retains consistency.
Step 4: Prepare for Arguments
No matter how clear your policy is, employees may still have questions or disagreements on denied reimbursements. Prepare with an FAQ and perhaps some employee training on these company-approved reimbursements. It’s unlikely that employees will make a huge fuss about a denied reimbursement as long as you set yourself up for success with a clear policy and remain consistent: don’t make exceptions for some and not for others.
Step 5: Create a Reporting Process
Lastly, you’ll want to establish a way to pull reports for employee reimbursements, as they can be coded as business expenses and should be reported accordingly. Whether you utilize your payroll system and pull a reimbursement report every payroll for safekeeping, or if you distribute reimbursements outside of payroll, keep a log of each employee reimbursement. Create a procedure that’s easy to follow and allows you to track the date, location, employee, dollar amount, and reason for the reimbursement so you can always refer back to it.
Remember to Always Be Consistent
While there could be a list of items to ensure you’ve done right when it comes to employee reimbursement, with the information above you’re set up for success with best practices for managing employee reimbursement. With that in mind, there’s one practice that bears repeating for good measure. The most important aspect for managing employee reimbursement, once you’ve established your process and ensured legal compliance, is to remain consistent. There is nothing that will derail an employee reimbursement program more than reimbursing employees for random expenses. Don’t leave room for ambiguity in your process, and remain consistent no matter what.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
Eddy’s HR Mavericks Encyclopedia
Employee Reimbursement
Employee reimbursement can get confusing. Can you reimburse for business-related travel and meals while traveling, or is that wrong? Are there tax implications for employees or the business? Read on to navigate through these questions and find out more.
What Is Employee Reimbursement?
Employee reimbursement is when an employer pays the employee back for personal money spent on an approved business-related expense. If your employee used their own money to purchase something deemed a business expense, you should reimburse them that money so they don’t have to pay for it out of pocket.
Why Is It Important to Manage Employee Reimbursements Correctly?
It's important to manage reimbursements accurately and clearly.
- Appropriate reporting. Employees shouldn’t have to report these reimbursements as income, so ensuring proper management of this is critical. These are expenses on behalf of the business, so employees should not be taxed on the reimbursement.
- Accurate records. You need to evaluate your expenditures year over year to ensure you’re allocating the appropriate amount of money to each expense category. Without proper employee reimbursement management, it will be impossible to ensure you’re budgeting correctly.
- Spot false reimbursements. While your organization may not run into false reimbursements, managing this process thoroughly will help spot inaccurate requests and avoid paying for non-business related expenses.
Types of Employee Reimbursement
Let’s look at common categories for employee reimbursements you may want to include in your policy and your accounting.
Travel Expenses
Your employees may not travel regularly for work, but having a category for business-related travel expenses is still a good idea. What about when an employee is on a sales trip for work? That could require travel by air, car, or public transportation, and you’ll want to ensure you keep track of those expenses accordingly. When it comes to travel expenses, it’s best to qualify all business-approved expenses in this category for the same trip. For example, if your organization has a policy to reimburse traveling employees for all meals, have the employee keep all receipts for the trip and request reimbursement according to your company policy. If meals are not included, be sure to articulate that to the employee prior to the trip to avoid confusion.
Office-Related Expenses
Whether your employees work in the office, from home, or use a hybrid model, there will be office expenses. This is a common reimbursement for every company. Decide whether you want to allow employees to submit items for reimbursement that they purchase for their home office, and include that in your company policy. If your employees buy things like fax machine maintenance supplies, paper, staples, printer ink, extension cords, and even the hand soap in the break room, they should be reimbursed. Things that keep the office running smoothly will be coded under this expense.
Training and Education Expenses
When it comes to training, it’s often good to have a separate category. While there may be travel involved in the training and your organization may choose to separate that into travel expenses, it’s good to have a training and education category. Based on the numbers you analyze from your expense reports, your organization can monitor this over the years to evaluate some sort of cap on educational expenses, or perhaps provide a company perk of X amount of money for training and continuing education as an employee benefit.
Miscellaneous Expenses
While most companies want to detail every expense, you’ll likely run into miscellaneous expenses when it comes to employee reimbursements. Perhaps you have a one-off reimbursement that you approve for an employee—say they buy lunch for the office— but it doesn’t happen often enough to have its own category. Those reimbursements may be coded as miscellaneous expenses. Be as specific as possible when requesting the information from the employee for reimbursement so you can protect the organization from risk and effectively evaluate what the reimbursement was for in the future.
Legal Requirements for Employee Reimbursement
When it comes to legal requirements for employee reimbursement, there are a few specifics to be aware of. Let’s review them below.
FLSA Requirements
The Fair Labor Standards Act (FLSA) regulates employee reimbursement when it cuts into employee's pay at a certain level. FLSA establishes the minimum wage and overtime pay that employers should pay their employees. While employers are not required to reimburse employees for non-business or business-related expenses, if the expense takes their pay below the minimum wage and overtime requirements established by the FLSA for non-exempt employees, they must be reimbursed. For example, if your non-exempt employee is making $800 gross for your bi-weekly payroll, and they are required to purchase a new laptop for work that runs them $500, this puts them below the minimum wage threshold, and reimbursement is required. Should the same employee have a need for a keyboard mouse that runs them $30, FLSA would not require reimbursement to the employee because the $30 does not lower their gross pay to under minimum wage. It’s important to note here that while the law may not regulate all expenses to be paid to the employee, it’s good for your organization to remain consistent and reimburse all employees for any approved, reasonable business expense they have.
Deadline to Report and Reimburse
FLSA also establishes a timeline on when employees should receive this reimbursement. Should the expense reduce the employee’s pay below minimum wage, the reimbursement must be made no later than the next payday so no undue hardship comes to the employee who pays for business expenses. Best practice would be to follow this process for all employee reimbursement, paying them in the next applicable payroll or within 30 days of paying for the expense. Individual states may have additional requirements; be sure to check reimbursement laws for your state(s).
How to Develop an Employee Reimbursement Policy
Now that the legal ramifications have been covered and the common reimbursement categories reviewed, let’s dive into how you can develop a reimbursement policy for your organization.
Step 1: Establish Reimbursable Expenses
First, establish the items your organization deems as approved expenses. Can your employees submit for reimbursement if they had to buy post-it notes for their home office? Do you allow employees to submit their meals on the plane for reimbursement, or just the flight itself? Be sure you are qualifying the reimbursements that make sense for your organization and that they are consistently applied.
Step 2: Evaluate How to Reimburse Employees
Before you can establish how you want employees to submit claims, you’ll want to decide the best process to reimburse them. Would reimbursement through payroll be the easiest for your organization, or do you prefer to keep payroll separate and pay for reimbursements through a monthly direct deposit or check? Look for a system that would be easy for your organization to administer and for your employees to follow.
Step 3: Create a Procedure
Next, and potentially the most important, is to establish a policy and procedure for your employees to follow. Clearly define what are approved employee reimbursements, where to submit them, what should be included in the submission, and the deadline. Provide your employees with a step-by-step process of how to effectively submit employee reimbursements for approval. This not only keeps the administrative workload of the reimbursements light but retains consistency.
Step 4: Prepare for Arguments
No matter how clear your policy is, employees may still have questions or disagreements on denied reimbursements. Prepare with an FAQ and perhaps some employee training on these company-approved reimbursements. It’s unlikely that employees will make a huge fuss about a denied reimbursement as long as you set yourself up for success with a clear policy and remain consistent: don’t make exceptions for some and not for others.
Step 5: Create a Reporting Process
Lastly, you’ll want to establish a way to pull reports for employee reimbursements, as they can be coded as business expenses and should be reported accordingly. Whether you utilize your payroll system and pull a reimbursement report every payroll for safekeeping, or if you distribute reimbursements outside of payroll, keep a log of each employee reimbursement. Create a procedure that’s easy to follow and allows you to track the date, location, employee, dollar amount, and reason for the reimbursement so you can always refer back to it.
Remember to Always Be Consistent
While there could be a list of items to ensure you’ve done right when it comes to employee reimbursement, with the information above you’re set up for success with best practices for managing employee reimbursement. With that in mind, there’s one practice that bears repeating for good measure. The most important aspect for managing employee reimbursement, once you’ve established your process and ensured legal compliance, is to remain consistent. There is nothing that will derail an employee reimbursement program more than reimbursing employees for random expenses. Don’t leave room for ambiguity in your process, and remain consistent no matter what.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
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