7 things the best expense policies have in common

Writing a best practice company expense policy

Consider this: The majority of expenses incurred should mean, by nature, that your employees are working hard for the company, going out of their way to make it better and willingly using their own money to do so.

With this in mind, a good expense policy for your employee reimbursements should include the following:

• Maintaining a positive tone of voice  
• Managing staff expectations  
• How clear boundaries prevent confusion  
• Why you should know your competition  
• Keeping staff on-side by setting reasonable limits  
• Using Purchase Ledger instead of Payroll to reimburse employees 
• Setting approval workflows at line-level.

Maintaining a positive tone of voice  

The main thing to remember is that the majority of employees submit valid claims and so it’s vital they don’t feel penalised or burdensome for doing so. Your policy must reflect your positive and forward-thinking approach to expenses so that staff know you are happy to reimburse their hard-earned money.  

Archaic terms, negative tone and outdated views will immediately turn your employees against not just the policy itself, but the idea of bearing an expense on behalf of the company. Conversely, it is our experience that a fair and reasonable expense policy maximises staff uptake (normally a major reason for a failed policy) and actually helps to reduce costs.  

Aim to keep the wording of your expense policy positive and employee focused. A common mistake is to write what your employees cannot do, instead of what they are entitled to. Try to avoid sounding cynical or making the employee feel punished through strict guidelines and scrutiny. Instead, keep terms friendly, polite and encouraging. 

Managing staff expectations  

It’s important to manage your employees’ expectations, as this increases retention and engagement throughout the business. Policy take-up and staff morale is better if employees agree and can easily comply with the employee expense company policy.  

Here are a few helpful tips for driving the management of expectations:  

• Keep ambiguity (and so, confusion) to a minimum. Try to be as clear and descriptive as possible, provide examples and trust your employees to be mature. Avoid cover-all phrases that only serve to make your policy ambiguous.  

• Manage repeat overspending at manager level. Instead of trying to write the policy to deal with all issues that may arise, write it to reflect the behaviour of the employees submitting genuine claims. If issues like repeat overspending do become a problem, it’s easy enough to manage this outside of the policy process.  

• Review and adjust. Question if you need to make any adjustments to the policy after its been published to your employees. It might sound obvious, but too many policies start positively but become outdated as they are never amended to reflect the current status of the business and environment. We recommend regularly reviewing your expense policy to make sure that you can ably reimburse your hardworking employees. It’s imperative that you regularly analyse your expense policy in line with the reception it receives from your employees. If you need to make adjustments, factor this in and assure your employees that you’re making changes based on their best interests as well as those of the business. 

Clear up questions with explanations  

We’ve found that employees favour well-defined explanations of the terms used in the policy. Ambiguous terms can cause undue stress, confusion and ultimately, delays.

Try to stick to terms which are obvious or include specific, applicable examples.  Without context, some examples of ambiguous terms include:  

• ‘Business use’  

• ‘May/may not’  

• ‘Your vehicle’  

• ‘Reasonable expenses’  

• ‘Travel expenses’  

To make these kinds of terms more specific and favourable by your employees, it’s best to explain exactly what you mean. Instead of saying “your vehicle”, make sure you outline which vehicle is being referred to. Is it a company vehicle, or personal vehicle?  

As an added bonus, by giving examples and hypothetical scenarios, you’ll also give employees an idea as to what your stance would be for scenarios not yet included. It is for this same reason that we recommend you also create a glossary of terms and/or an FAQs document to sit alongside your new policy. This will help to keep the policy as short as possible and you can keep adding terms and questions/ answers without having to reissue the policy itself. 

For example

'Reasonable travel’ – What we mean by this is that you only travel when you think it’s necessary, to help us keep costs to a minimum and to reduce our carbon footprint. When you do travel, please make every effort to use the most cost-effective mode of transport possible. However, we don’t expect you to unnecessarily inconvenience yourself just to avoid travelling. 

Know your industry  

You might want to research the expense types of similar organisations to your own offer, and the monetary limits they set, to ensure you have remembered everything and so that your policy is fair. Don’t forget, your limits should also reflect the level of authority within the business (i.e. managers should have more scope to use intuition for ‘one off’ expenses).  

Keep staff on side with reasonable limits  

Setting limits, both spending and date, should be fair to the employee. It may seem obvious to do this, but this is one of the classic expense policy problems. Do not set unreasonable spending limits for your employees. This will only cause interruption to workflow, difficulty with the claims process and more work for the approver.  

We instead recommend that when deciding on allowable expenses, allow room for the employee to have options. For example, your limit for lunch is $15. Your employee only has 10 minutes between meetings to pick this up, and the only place available sells lunch for $17. Many policies would make the employee pay the difference or they would at least be subject to delay and scrutiny. Although $2 may seem small, it will aggravate the employee as it is an expense incurred while they were working to better the company.  

Our experience has proved that instead, a slightly higher limit would cause fewer delays, maintain employee morale and drive a culture where employees are not resistant to go above and beyond for the company. That, and most employees will not look to exploit the limits, but rather feel empowered with the freedom to claim for what they feel is necessary. 

Struggling to manage your expense policies, find out how our expense management software can help.

The best plan for reimbursements  

Contrary to popular practice, our advice is that you use your Purchase Ledger rather than Payroll system to pay expenses. We use this method as it’s easier to make more regular or ad hoc payments. E.g. when there is a large amount owing to an employee.  

Reasons why it’s better to use Purchase Ledger rather than Payroll: 

• Expense payments are not dependent on Payroll cut-offs nor on Payroll resources, who can be very busy.  

• Running more regular expense cycles, weekly or fortnightly for example, helps spread your finance team’s workload over the month, rather than spending hours on expenses at the end of a month when they have other month-end deadlines.  

• The same is true for your approvers, they won’t have to rush through outstanding approvals.  

• Avoids accounts having a flood of expenses come in at the last minute to process.  

• Minimises the impact of any payments that are missed. As an employee will be not be out of pocket for another month, but rather only until the next payment run. This is easier for them to bear the cost of the business expense and makes them more willing to incur a business cost in the future 

Other reimbursement recommendations  

Keep an eye on credit card spending. As this is not the employee’s money and so they do not need reimbursing, they tend to be forgotten. To avoid this, we recommend you limit the use of company credit cards where possible. We also recommend that when reimbursing, you manage any issues with staff through reporting. This way, you can track who has not submitted for a while when they probably should have, who has claimed the most and flag before it is too late.  

In the unlikely event you must escalate matters, we recommend you do this on a case-by-case basis. Due to the nature of reimbursement, it is unlikely you’ll encounter many instances of further escalation like this as it is in the employee’s interests to submit on time and correctly. Again, instead of writing the policy to fit every eventuality and possible issue that may arise, manage any issues by reporting outside of the system. This keeps your processes clean and easy to follow for all. 

Setting business expense policy approvals at line level  

We recommend setting any expense limits by line rather than by total expense claim. That way, when any of the lines breach their limit, only this part of the claim needs to be sent to your second approver. Doing this means that the normally more senior employee only has to look at the items that require additional scrutiny, freeing up their time for more business critical tasks. This streamlined process will provide a slick approach to approvals and should stop this becoming such a time consuming task. 

We recommend you assign sign-off limits by line rather than claim as a whole because: It stops employees from simply submitting two or more claims to get around the limit. This stops the second line of sign-off needing to be involved more often than they need to be. It introduces real control, as claims are broken down to be more granular. The second approver will only see the individual lines that are over limit. Limits by line remove the risk of having to wait even longer for expenses to be paid as only rejected, or lines that are over limit, are subject to additional approval or delay. 

Being fair is the key  

It’s important to value your employees and treat them with respect, in person and on paper. Your policy will quickly become an extension of your business ethics and ideals and so should be written with this in mind. If your respect, appreciation and understanding is reflected in the boundaries and allowances of your policy, your staff will be happy to abide by the fair processes and procedures.  

We believe an expense policy should communicate the business’ appreciation for the hard work of employees in carrying out their duties and bearing the financial cost in the interim.