It is possible for employers to reimburse their employees for out of pocket expenses incurred on a tax-free basis, as long as the rules of an Accountable Plan are met. Furthermore, it is required that the reimbursement must have a business connection, this implies that allowances, advances, or reimbursements in the plan are restricted to expenses that qualify as business expenses. All this is under the code and that an employee pays or incurs in connection with the employee’s performing services for the employer. Also, employees’ reimbursed expenses are to be substantiated by the employees and any excess amounts paid are to be returned to the employer.

Employers are also allowed to utilize a per diem method, and it is supposed to state a fixed amount for lodging, meals and incidental expenses for which there is no need for proof of the amount of spending. Many employers and employees favor the per diem method since they find it easy to administer.

With all the above said, coming up with a guide to employee expense reimbursement is not a difficult job, the following steps will show you why.

Formulate a Written Policy For The Expense Reimbursement Process

A clearly explained expense reimbursement policy plan should be established, distributed and communicated internally to your employees. There essential details that must be represented in the plan. These details include expenses eligible for reimbursement, the guidelines for how claims should be submitted, and the timeframe for the issuing of payments.

Make necessary rules like an employee needs pre-approval before purchasing items on behalf of the organization be precisely known. Your policy should be as detailed as possible to avoid cases where employees make purchases, only to find out such purchases are not covered within the scope of the company policy.

It will be better for all parties involved if the policy has contact information which employees can call to make inquiries before making any purchases.

Determine What Expenses Employees Can Claim

You need to set down clear rules that state what purchases qualify as valid expense claims. Travel and accommodation, office supplies, cellular phone charges, and costs for entertaining client are typically eligible for reimbursements. Clarify that employee perks like transit passes and fitness memberships are offered as company benefits. Your employees should understand how much is covered by the employer, from a partial subsidy to full reimbursement.

Create a System For Collecting Employee Expense Claims

A system where expense reimbursement claims are handled is necessary for proper compensation. Employees should file expense reimbursement claim reports and then submitted to the HR department. Human resource department will verify if the claims are legitimate and will approve the payment if so, as per the company’s set guidelines. When filing a claim the employee should indicate the total amount of the purchase, the date of the acquisition, the name of the seller/supplier, and a description of the goods and services bought. Come up with additional information that should be indicated in the claim form if you deem it necessary.

Employees should always avail records supporting the claim to the company for review and approval. Some of the records that should be considered permissible are an invoice, credit card statements, vehicle logs, ticket stubs, and receipts. You should establish a centralized system of submitting expenses that also includes the process for sending in proof of evidence so that you stay organized.

Claim process should be kept as simple and streamlined as possible to reduce time wastage. Digitizing the process is another measure that will ensure employees do not spend a lot of time on sending in their expense submissions.

Verify the Legitimacy of Expenses

Every claim should be reported in a timely manner. Therefore you should set and communicate deadlines for expense report submissions. A deadline, for example, claims to be submitted a week before pay date will leave enough birthing room for the claim to be reviewed and reimbursement can be included in the employee’s pay cycle.

You must review all expense report and make sure they comply with the policy guidelines. This way you can discuss with your employees on any irregularities in the report or extra expenses which have not been included. Lack of compliance could lead to the claim being denied.

Remember that reimbursement expenses that are more than 60 days old are considered as compensation to the employee, and this means they are subject to withholding taxes. That is why you should not allow employee expenses to be reimbursed if the receipt dates are more than 60 days old.

Pay Reimbursed Within a Specific Timeframe

A clear and transparent process communicating the expected schedule for expense reimbursement should be communicated. This way the employees will know when to expect payments from the company.

Transparency will help out a lot when it comes to paying employees, and it will also ensure everything is running smoothly in the company. If the staff buy for your company items from their pocket and are not reimbursed, it can lead to ill feelings in the workplace.

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