It does not matter whether an organization is big or small in size, every organization incurs expenses that may reduce the organization’s taxable income.
The expense reimbursement is a process that allows employers to pay back employees who have spent business-related expenses from their own pockets.
However business-related expenses are tricky to define but mostly every organization has set its own criteria to define what is and what isn’t associated with work. And when employees receive expense reimbursement, they are not required to report such payments as their income.
Reimbursable expenses tend to occur when employees travel for work from one place to another but must be associated with activities that are related to their employment, for example, certain procurements related to work, transportation, lodging, meals, etc.
In order to reimburse the employees what they have spent from their own pockets in relation to work, an organization must have a policy for expense reimbursement or an advance payment program. Such a policy must meet the following three conditions:
- Link with business: The expense must occur in performing the services as an employee of the employer.
- Proof: The employee must prove his business expenses by providing the employer with evidence of the amount, time, place, and most importantly business purpose of the expense. The employee also must present business expenses within a reasonable time after they occur.
- Refunding excess amounts: If the amount the employer pays to the employee exceeds the amount spent by the employee then it must be paid back to the employer within time as set by the employer.
Steps to Cope the Expense Reimbursement Process Expeditiously
Organizations attempt to establish an internal system according to which employees must have to report their expenses and request their reimbursements. This can be better understood by considering an example related to business travel.
William traveled from Birmingham to New York to have a meeting with a customer. Once he reached there, he spent on taxi fares, meals and lodging, etc.
In order to reimburse the organization, he has to report these expenses and apply for reimbursement, he must fill a form with detailed information about each and every expense he incurred in New York along with all the original receipts. All this detail is then passed on to the HR and finance department for assessment so they can evaluate and process his request.
The process in every organization is not very easy but it can be made simple for the organization’s employees by setting some criteria for reimbursement of expenses. The criteria should be based on the following steps.
1. Set A Policy
The first step for an efficient and effective process for reimbursement of expenses is to create clear rules and regulations of what’s eligible to be reimbursed and what’s not.
If an organization possesses a demonstrated policy for this purpose, it will assist the management in full liberty to either approve or deny a request.
This is also very important for the organization to let their employees know what’s acceptable. Having a format will facilitate the financial department. This will increase the ability of the department to entertain the requests faster.
2. Proper Request forms should be designed
The initiation of every process starts with the input of information. If the input doesn’t come with all the required information that is needed to move forward to the next step then it will create hurdles in the coming steps and the whole process of reimbursement will be affected badly.
It may cause the management to work again which would ultimately waste both time and resources of the organization.
3. Organize all Requests
Third step is to organize all the requests received from multiple staff. With all the information in hand, it is equally important to organize them. It can be better understood by imagining if 10-15 requests for expense reimbursement are received on daily basis.
The requests in a large organization can be even more. So, it is extremely important that a proper system should be there for receiving, evaluating, and responding to these requests. On the other side, employees after submitting the requests also wait for the reimbursements so a proper system is required for managing all the requests in an effective manner.
4. Automate Insistent Tasks
Once the process is implemented in a good manner it is mapped and becomes a standard. Some activities become repetitive and manual, such as designating a demand for a person or advising the senior manager when a pressing request arrives.
In fact, a robotic machine can be used to automate all manual steps as it can save precious time which can be invested in those other activities that need a human to be done.
5. Smooth and Timely Communication with Stakeholders
When the finance department receives a request, in paper or via email, then on the other side, employees also wait for an answer to see if it’s correct and will the application for the reimbursement of expenses will either be accepted or rejected and if accepted then when the payment can be received. Therefore, smooth and timely communication with the stakeholders must be ensured in the organization.
6. Final step: Reimbursement controls
The last and final step is the reimbursement of expenses to the employee. There are few risks associated at this point. Risks include that the employee who applied for reimbursement might not get the amount he has requested for or might be reimbursed to another employee. Hence few controls need to be implemented in place to avert such type of risks which includes
- Employees’ applications for reimbursement should be evaluated properly before paying them back.
- Details of the employees who took the advance for business-related tasks should be maintained in an appropriate manner in order to track them and to take complete details from them for the advance taken and then assessed for its authenticity.
- An acknowledgment must be taken from the employees who have been reimbursed to avoid the risk of double payment to the same employee.