Are your employee travel expenses and other business expenses compliant with the set regulations in your city or country?
If you are unsure, unaware, or want to neglect such regulations around employee travel expenses - your business health could be in trouble.
Many times, employers pay a lot of attention to specific functions in their business. As a result, they turn a blind eye to other functions such as expense management. Though this may not affect your business now, not staying compliant or failing to monitor employee travel expenses could prove detrimental.
In this article, we talk about the various facets of staying compliant when it comes to reimbursing employee travel expenses. Additionally, we discuss how businesses can ensure compliance within their organization to stay audit-ready at all times.
How to create an accountable plan to track employee travel expenses:
As a business aiming to scale, you are bound to have work-related travel. You have multiple employees traveling to various locations on various days. Some of them are your sales executives who have to attend in-city client meetings. The others may be your employees conducting or visiting a business-related conference. Each of these business spends tend to specific business purposes. These employees then submit an expense report to claim their respective reimbursements.
Your finance teams now have to manually sit and validate and approve these expense claims. It is close to impossible for them to remember and verify spends depending on their categories. This is where an accountable plan comes into play.
A practical and well-defined plan which is IRS compliant plays a crucial role in aiding reimbursements of employee travel expenses.
Ways to effectively track employee travel expenses:
- Define budget allocations: Make sure this entails all the allotted budgets for all the possible business expenses incurred. These categories can be departments, employees of different tiers or designations, events, per diems, mileage rates, and other work-related travel expenses. This ensures your finance teams are well aware of the spending limits.
- Draft a well-defined employee travel expenses policy: This is to ensure your employees are aware of your policies for the reimbursement of travel expenses. Your policy needs to outline the types of acceptable spends, the spending limit for different categories, and more. Ensure you discourage fraudulent behavior.
- Communicate your policies effectively: Your employees do not have the time to understand the nuances of your travel and expense policies. Hence, ensure you conduct short sessions or inform your employees via email or other such means. This increases the chances of your employees staying compliant.
- Document all business spends: As a critical measure to staying audit-ready and compliant, ensure your finance teams document company spends with corresponding evidence of spends. Also, document the reason behind the spend. This will later help you evaluate the spending patterns at your company.
Measures to ensure your employee travel expenses are compliant
Ensure your plan abides by the laws and rules of your country and state. Different states have different rules. Hence, as a business considering to stay compliant, ensure you do your research around these topics. Double-check on the regulations that apply to your state or country. Once done, make sure you stick to the defined parameters in your “accountable plan.” If done in accordance, your business expenses will not become taxable income.
The IRS Publication 15 states:
“Payments to your employee for travel and other necessary expenses of your business under a non-accountable plan are wages and are treated as supplemental wages and subject to the withholding and payment of income, social security, Medicare, and FUTA taxes.”
If your business does not have an accountable plan or isn’t compliant with it, all the company spends stand a chance to become taxable. Hence, it is vital to first draft a well-defined plan and then effectively communicate it with your employees.
What happens if your employee travel expenses are not IRS compliant?
Many times, businesses may have an accountable plan and defined parameters for employee travel expenses. But the employees may do the following:
- Employees may indulge in dishonest behavior with the submission of fraudulent expense claims.
- Your employees may not provide the necessary evidence to support expense claims in their expense report.
- They may not return the unused money from the cash advance they received for a business trip.
- Sometimes, the business expenses incurred may supersede the IRS limitations.
All these instances may lead to these employee travel expenses becoming taxable. In cases where the employee does not return unused money, the balance amount is considered to be taxable.
Why is managing your employee travel expenses important?
Your employees spend a considerable amount of their time devoted to the growth of your business. As a consequence, they often spend their own money on business trips or to run errands for your company.
Your employees work hard for their money. As honest citizens, they also pay tax for the money they earn. When your employees make spends for your business, there is an associated tax for these expenses. The onus of paying these business expense-related taxes should always fall on the employer and not the employee.
An essential aspect of managing employee travel expenses is documenting business expenses. While some businesses use traditional means such as an expense report template, others opt to use an automated expense management software.
Benefits of using an automated expense management software to manage employee travel expenses
Businesses which use an automated expense management software, state it has benefited both their finance teams and the employees. With an automated system, employees no longer need to enter business expenses to compile expense reports manually. Now, they can click and upload receipts on-the-go. This has helped them save both time and effort by automating mundane tasks.
Your finance teams, on the other hand, seem to benefit the most. Usually, they are required to hoard through a bunch of receipts manually. Once done, they need to collate, verify, and then approve these spends. While manually reviewing expense reports, it is close to impossible to detect duplicate bills from the past. This further encourages fraudulent behavior.
With an automated expense management software, you can get real-time updates on policy violations, out-of-policy spends, duplicate bills, and more. This allows your finance teams the leisure to click and approve or disapprove an expense report in just a single click, while the software does the hard work.
Do you also wish to streamline your employee travel expenses?
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