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What is a travel and expense policy?

A recent study by Egencia states that only 60% of companies who frequently send their employees on business trips use a travel and expense policy. Are you one of them? 

While working for a company, an employee often incurs many kinds of business expenses. These expenses can be incurred during a business trip, a client meeting, or even an off-site event. But does your business have a list of guidelines that help your employees understand what sort of expenses are reimbursable? Are they aware of the capping on specific spend categories? Do your employees know the consequences of fraudulent expense claims? If not, this is where a travel and expense policy comes into play. 

T&E expenses are the most common type of business expenses incurred by a company. Additionally, it is the second-largest controllable cost to a company, after employee payroll. Hence, it is important that you pay heed to it.  

A travel and expense policy plays a crucial role to help streamline business processes, save costs, and eliminate fraud while dealing with the reimbursement of business expenses. A comprehensive and well-defined travel and expense policy is an essential must-have for every company that plans to scale. 

In this article, we discuss the nuances of a travel and expense policy. Additionally, we look at the influence it has on employee spending habits, internal policy compliance, employee productivity, and more.

Everything you need to know about a travel and expense policy

A travel and expense policy should ideally provide employees, and finance teams with guidelines as to how the organization will reimburse its traveling employees for business expenses. It is essential that your travel and expense policy is well-researched and covers all the areas of expense reporting. This helps simplify the process of travel expense reimbursement and imposes appropriate controls and limits on business travel spending.

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What happens without a travel and expense policy?

A travel and expense policy aims to address all the possible travel expense concerns of the stakeholders involved. If these queries go unaddressed, it could lead to policy violations, out-of-policy expenses, fraudulent expense claims, decrease in policy compliance, and more. These factors, put together, could spell disaster for your company.

Challenges employers face without a defined travel and expense policy:

  1. A company can end up spending heavily due to hidden costs if business expenses are not always under supervision. 
  2. Due to the repercussions of not having a travel and expense policy, employees are likely to spend irresponsibly during business travels.
  3. A rise in fraudulent expense claims in the form of duplicate, exaggerated, and misreported business expense claims. 
  4. Without a travel and expense policy in hand, fraudulent behavior is not controlled or addressed and hence, encouraged further.

Challenges finance teams and approvers face without a defined travel and expense policy:

  1. Due to the lack of stringent deadlines, approvers or verifiers may end up either delaying the reimbursement process or accepting fraudulent claims.
  2. If expenses are not managed in a compliant manner, their auditing and accounting become problematic and erroneous.
  3. The entire process of verification and approval can take a long time if manual checks are involved. Further, it gets more prone to human error.
  4. Without a travel and expense policy, there is no rigid way of recording and storing expense data. Hence, finance teams have no insights into spending trends and patterns.

Challenges employees face without a defined travel and expense policy:

  1. Without sufficient insight into the travel and expense policy, employees may end up with policy violations and out-of-policy expenses.
  2. Employees may be unclear as to whether certain expenses are reimbursable or not. As a result, they may not report them at all. 
  3. Due to the loss of personal money, employees may avoid going on business trips altogether.
  4. This could have a direct impact on employee morale and employee productivity.

What does a travel and expense policy do?

A travel and expense policy’s purpose is to eliminate or reduce the risk factors involved in the expense reporting process. It does so by specifying the rules and principles that the finance teams and the employees must follow while dealing with their business travel expenses. 

The primary functions of a well-rounded travel and expense policy:

  • Defining a reimbursable business expense

A travel and expense policy’s objective is to clarify any confusion regarding expense reimbursability. It lists and outlines the categories of travel expenses that must be reported by an employee. It also addresses every category in detail and states the procedure to track and report that specific business expense.

The categories found in a travel and expense policy:

  1. Air Travel
  2. Local Transport
  3. Hotel Bookings
  4. Travel advances
  5. Corporate credit card expenses
  6. Medical and insurance expenses
  7. Per diems and cash advances
  • Setting guidelines for employees to limit and record travel spending

A travel and expense policy imposes limits and conditions to manage and regulate expense reporting. Spending brackets in a travel and expense policy should be based on the designation, the nature of the job, and other such variables. 

Every category requires a distinct approach to track business expenses judiciously. The policy identifies and elaborates appropriate ways to contain these expenses as much as possible.

Ways to control business expenses using a travel and expense policy:

  1. Air Travel – Clearly state which class of flight bookings will be applicable for reimbursements. If you do not have a travel agent, ensure you mention when and how your employees must make the bookings. 
  2. Hotel Bookings – State the hotels or hotel chains your employees are allowed to stay at. If you do not have a booking agent, ensure you mention the capping amounts for hotel bookings. 
  3. Local Transport – As per your government regulations, affirm the mileage rate based on the vehicle type, kilometers traveled, and location.
  4. Corporate credit card expenses – Set clear boundaries as to not mingle personal and business expenses. Discourage your employees to use this card for personal gains. 
  5. Per diem – If you provide your employees with per diems, ensure you mention the amount provided to employees. 
  6. Travel advances – Mention the set travel or cash advances that your business offers its traveling employees.
  • Stating the responsibilities of employees concerning business travel expenses

Employees are supposed to spend on business reasons as responsibly as they spend for personal reasons. A travel and expense policy states the ethics and responsibilities of business travel. It paves the roadmap that every employee should follow to uphold the legitimacy of their business expenses. They are expected to exercise fair judgment while spending and reporting business expenses. With a predetermined travel and expense policy in place, employees can have a clear idea of what they need to do before, during, and after a business trip.

  • Describing the procedure of expense reporting

A travel and expense policy describes the procedure for reporting an expense to avail reimbursement. The policy lays out the specifications behind the submission and approval of expense reports. It also states the ideal time-frame to report these expenses to avoid delays or misses.

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  • Describing the procedure of expense approval and reimbursement

After an expense is reported, it is subjected to verification before it can be processed and reimbursed. A travel and expense policy should ideally describe the approval workflow used by the organization. It should define the criteria for approving, flagging or discarding an expense. The procedure and checklist to be followed by approvers for processing a report and reimbursing it is laid down by the travel and expense policy. In this regard, it also identifies the involvement of travel agents and admins in travel expense investigation and validation.

Why does a travel and expense policy matter? 

Every organization requires rules and regulations to carry out its operations systematically. Like any other operation, business travel and reimbursement also necessitates specific guidelines to adhere to. Travel expenses are an ongoing cost that is essential for conducting and expanding a business. To check that they are reported and managed effectively, a company must employ a travel and expense policy. A well-written and well-communicated travel and expense policy helps streamlines travel expense management for the company as well as eases the process for the employees.

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