5 Common Expense Reimbursement Mistakes Businesses Make and How to Avoid Them

In today’s dynamic work environment, where organizations strive for efficiency and employee satisfaction, managing expense reimbursements is paramount. By streamlining their system for reimbursement, companies not only foster a culture of trust and transparency, but also empower their workforce to focus on what truly matters.

The range of expenses eligible for reimbursement varies depending on company policies and industry standards, but most commonly, these include:

• Travel and lodging accommodations for business trips
• Gas and mileage reimbursement for employees often on the road
• Business tools and supplies
• Education and professional development costs

While the idea of employee expense reimbursement is simple—they pay out-of-pocket, the business pays them back—companies often make mistakes that can lead to inefficiencies, misunderstandings, and even legal issues. So, let’s dive into five common expense reimbursement mistakes businesses make and tips on how you can avoid them.

1. Your business lacks a clear expense reimbursement policy and process

Without clear guidelines, employees may struggle to understand what expenses are reimbursable and how to submit them. To avoid this, create a comprehensive expense reimbursement policy that clearly outlines:

1. Eligible expenses
2. Spending limits
3. Reimbursement request submission deadlines
4. Documentation requirements for reimbursement i.e. receipts, screenshots, bank statements, etc
5. The employee(s) managing reimbursements

Your policy should be readily available and regularly communicated to employees to ensure everyone is on the same page. Also, in case your employees run into complications or reimbursement-related questions, make sure it’s clear who they can direct their concerns to.

2. You neglect or are uncertain about legal or tax regulations for expense reimbursements

Neglecting tax regulations and legal standards regarding expense reimbursements can have serious consequences for the business.

Under the Federal Labor Standards Act (FLSA), any work-related expense incurred by an employee that would bring the employee’s pay below the minimum wage (or cut into overtime pay) must be reimbursed. Beyond that, compliance standards in the U.S. vary state-by-state.

Additionally, tax regulations set by the IRS and how your business reports reimbursements depend on whether you have an accountable or a non-accountable plan in place.

In an accountable plan, employees must provide detailed documentation of expenses and substantiate them in a reasonable timeframe to receive reimbursement. They must also return any amounts in excess of substantiated expense. The reimbursed amounts are not considered taxable income for the employees.

On the other hand, non-accountable plans do not require detailed reporting, but the reimbursed amounts are treated as taxable income for the employees. Accountable plans promote transparency and ensure that expenses are incurred for business purposes, while non-accountable plans provide simpler processes but come with tax implications.

It’s critical that your business stays up to date on tax laws and regulations to ensure compliance and avoid penalties or unnecessary audits. Seek guidance from accounting or tax professionals to understand the specific requirements for employee reimbursements in your jurisdiction.

3. Your employees are losing money on business expenses

If your employees spend their own money on company expenses, it’s critical to reimburse them in a timely fashion. Slow approvals and delayed reimbursements can lead to frustrated employees, impact morale or trust in the company, and potentially cost them.

Small out-of-pocket purchases may not be an issue, but those can add up if employees are not submitting receipts right away or put off doing expense reports. For pricier corporate expenses like business trips, client outings, car rentals, gas purchases, and company supplies, relying on the employee to front the cash is problematic. They could incur fees or interest that impacts their personal credit. And God forbid they lose their receipts or miss their reporting deadline, they may be denied their reimbursement altogether.

Avoid this mistake by establishing a clear reimbursement process with a defined timeline for expense submission, review, and reimbursement. Also, encourage digital documentation (e.g. photos of paper receipts, screenshots of digital statements, etc.) and consider using spend management software that allows employees to scan and upload receipts easily.

4. You rely on tedious, manual expense reporting, tracking, and management processes

Relying on manual expense reporting and reimbursement processes can create a lot of challenges. Between employees collecting, compiling, and scanning receipts, manually entering details and itemize expenses, and then finally having those on the accounting side to verify, categorize, and approve those submissions one-by-one, a lot can go wrong. Errors in calculations, miscategorized expenses, incomplete spending visibility, and delayed reimbursements are just a few of the issues that may come up.

Additionally, manual processes are slow and tedious, which increases processing costs and creates more work for your employees leading them to burnout.

The digital transformation of business practices means that there are options to automate these types of processes. Instead, you can rely on software that does the tedious, time-consuming tasks for you and use corporate credit, debit, and charge cards that create almost all the records needed for internal expense management.

5. You’re reactive instead of proactive

Reimbursement is all about reviewing transactions as they’re reported and then paying money back to employees, but taking a more proactive approach can simplify, speed up, and improve employee expense management processes.

Corporate credit and debit card options eliminate the need for employees to front their own cash on business expenses. Plus, they give business owners more control over when, where, and on what their employees spend. And with a comprehensive spend management software like U.S. Bank’s tied directly to your corporate cards, you have flexible spend controls at your fingertips and automations that make tedious reimbursements a thing of the past.

These controls include:

1. Pre-approved spending categories
2. AI-powered receipt capture
3. Workday only spending limitations
4. Auto-reminders for expense submission deadlines
5. Real-time approval requests for card control changes
6. And more!