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Employee expenses are part of daily business. An expense claim for a business lunch here, a reimbursement for a plane ticket there, and without even realizing it, the costs for reimbursing your staff for expenses they incurred on their job grow bigger and bigger.
What might not seem like a big problem at first can quickly spiral out of control as soon as you hire more staff. That’s especially the case for businesses working with a globally distributed team. With remote team members located in different countries - and even on different continents, for that matter - travel-related expenses increase significantly, since team members have to travel to the headquarters on certain occasions.
To avoid losing control over employee expenses and guarantee that all members of your international team are treated fairly and equally, it’s crucial to work out a global expense policy that sets clear rules as to which expenses are reimbursed by the company. In this blog post, we’ll tell you everything you need to know to successfully set up your own travel and expense policy.
A company expense policy, also called expense management policy, travel and expense policy (T&E policy), expense reimbursement policy or just expense policy for short, is a detailed set of guidelines that outline which employee expenses are covered and reimbursed by the company. Employee expenses are defined as the costs employees incur when carrying out work for their employer or when traveling to the company headquarters for a meeting with the entire remote team.
The expense policy should be made available to all employees so that they can consult it at any given moment - rather than sending email requests to HR. It’s common to either attach it to the individual employment contract, or store it on the company cloud together with other documents such as the GDPR statement or the employee handbook. Many remote businesses use virtual workspaces like Notion to make sure their global teams have access to the expense policy and other related documents.
An expense policy should provide clear guidance for employees as to which expenses are reimbursable, and which aren’t. The main body of any expense policy should therefore consist of a detailed list of the covered expenses, which may include:
Hospitality and other networking-related expenses
Professional training materials and courses
Food and drink
Use of private car for work-related travel, i.e. reimbursement for gas and mileage
Fees for credit card use
Those are the most common expense categories to be found in company expense policies. In addition, you have to provide detailed information as to which expenses under each category can be claimed and in which limits. Here are a few examples:
Only reimbursing rail, bus and airplane travel while excluding the use of a rental car
Defining specific accommodation types for which employees will be reimbursed - and for which ones they’ll have to pay themselves
Paying for basic meals and non-alcoholic drinks only
Defining country-specific daily meal budgets
For each type of expense, you then have to specify a budget, or at least define rules that limit spendings to a “reasonable” amount. Let’s take the following example. Rather than just stating in your expense policy that accommodation expenses will be reimbursed, you should be more specific and state that costs for accommodation will be reimbursed up to an amount of 300 euros per trip, or that the expense policy doesn’t cover stays in 5-star hotels.
In addition to the list of expenses covered under the policy and the limits that apply, a company expense policy should further include the following elements:
Eligibility, i.e. who is able to claim expenses
Procedure for reimbursement, i.e. detailed instructions on how to claim expenses and through which channel to submit the claims
Payment methods for expenses, e.g. company card or expense advances
Dispute management, i.e. description of how expense-related conflicts between employee and employer are dealt with
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The most obvious reason why you need a company expense policy is that you need to control your costs. Employee expenses are no rarity and without clear rules, expenditures can quickly spiral out of control and eat into your company budget.
Also, your employees may not have the same notion as you as to which spendings are reasonable, and which aren’t. In the worst case, employees might even take advantage of the absence of an expense policy to buy things for personal use and claim it as a professional expense.
To avoid spending lots of money on expenses which don’t bring any value to your business and getting into an argument with employees over whether or not certain expenses are justified, you should set up an expense policy as soon as possible.
For international organizations with globally distributed teams, having a global expense policy is particularly important. Since many remote-first businesses invite their employees to annual summer or Christmas parties or other social gatherings at their headquarters, it’s important to have a T&E policy that sets the rules for expense reimbursement related to these specific events, as well as for other work-related trips such as group workations.
If it’s the first time you create an expense policy, the task might seem quite overwhelming. But with the right guidance, drafting a policy on how to manage employee expenses is a piece of cake. Here are the different steps you should follow and what to keep in mind when writing the actual document.
The very first step when setting up a company expense policy is to conduct a thorough analysis of your business’s financial situation and determine what your budget is. Once you’ve done that, you should look at your company’s current and projected headcount and the amount of expenses which is to be expected.
Think about how much money it would cost if all members of your globally distributed team were to travel to your company headquarters for a social event once a year. By comparing your budget with the expected amount of expenses, you’ll be able to evaluate how generous you can be.
We’ve already given you a list of the most common expense categories (i.e. transport, accommodation, hospitality etc.). Those are the basic categories you can choose to include in your expense policy. Let’s say, for instance, that you only want to reimburse transport and accommodation costs, but not food and drinks.
Within these categories, you then have to define reimbursable and non-reimbursable expenses, and to what extent each type of expense will be covered. For example, you could limit accommodation expenses to bookings with a certain hotel chain you have a corporate rate with. When it comes to flights, it may be wise to only allow trips in economy class.
Common business practices differ from country to country. This also includes the reimbursement of employee expenses. Expenses that are commonly paid by employers in one country may not be on the list of approvable expenses in the next one. Make sure your travel expense policy is fair to all members of your globally distributed team. And even more importantly, your expense policy should comply with all the laws and regulations that may impact your expense management.
Depending on the country, expense-related documents like invoices etc. will have to be kept during a certain period of time or be addressed directly to the company instead of the individual employee.In some countries, employees are even legally entitled to be reimbursed for certain expenses they incur during business travel. Not to forget that rules differ as to which employee expenses are allowable, i.e. which expenses can be deducted from business profits for tax purposes.
As is the case with any company guidelines, if they’re too long, no employee will bother reading it. Therefore, keep your expense policy short and to the point, and avoid getting into too much detail.
The main purpose of the document is to provide clear guidance to your employees so they know which expenses to claim and how to do it. Ambiguous or unclear wording will only result in disputes and confusion, which means additional work and trouble for your HR team.
No matter how much work and effort you put into it, the first version of your expense policy definitely won’t be the final one. As time passes by, you’ll find new expense items to add to - or exclude from - the list. Think of your expense management policy as a work in progress which will need to be adjusted following your learning curve.
Also, business practices evolve with time, which means that your T&E policy might be outdated in a couple of years’ time. Another factor to consider is a changing headcount. Your global team will (hopefully) grow over the years, which means you’ll have to review your expense policy to adapt it to the new circumstances.
If you’re operating with a globally distributed team, your staff is either employed through your own local legal entities, or through an Employer of Record (EOR). As the employee’s legal employer, the Employer of Record is also responsible for the financial side of the employment relationship, i.e. for paying salaries and reimbursing expenses. However, as the employee’s de facto employer, it’s up to you to define which expenses are reimbursable. This means that your travel and expense policy is valid for your entire global team, regardless of whether they are employed directly by you or via an Employer of Record.
When it comes to reimbursing employees who are officially employed through an EOR provider, the standard procedure is the following: Your employee sends the information and receipts for the expenses to their line manager in your company who approves the request and forwards it to the EOR partner. The latter will then add the reimbursement to the employee’s next salary payment.
Looking for a trusted Employer of Record partner to hire global talent? At Lano, we work with a network of experienced EOR providers covering 170+ countries. Book a demo to find out how Lano can help you fast-track your international hiring processes and grow your global team in full compliance.
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