Managing expense reimbursements manually can be time-consuming. We’ve addressed some of the most common questions in this blog to help you simplify the expense reimbursement process.
An expense reimbursement is a payment made by a business to an employee for a business-related expense the employee has incurred personally. The reimbursed amount should exactly match the expense paid by the employee.
Your organization can reimburse employees for all work-related expenses incurred. However, there are two things to consider:
You should reimburse all employee expenses according to the same guidelines the IRS sets for other business expenses, like rent or salaries. In short, these expenses must be ordinary and necessary for your business to function.
You also have the freedom to set your own expense policy. This helps you decide on specific things like–whether employees can fly business class or expense large dinners or parties for clients. Having a clear expense policy in place helps everyone stay on the same page about what expenses are reimbursable.
Here’s what a sample expense policy would look like:
To ensure all expense reimbursement requests adhere to company policy, accountants would need to verify them manually, a process that can often span weeks or days.
Here’s how an expense reimbursement software can set & enforce policies with a single click:
See how Fyle can automate policy compliance for your entire organization.
A well-defined employee reimbursement clarifies what business expenses your company will reimburse and sets expectations for employees. It helps ensure responsible spending and simplifies the expense reimbursement process. Here’s how you can create one:
You’ll need to begin by defining what expenses are acceptable and reimbursable. Here are the most employee expenses that are reimbursed:
An accountable plan is an employee expense reimbursement method for out-of-pocket expenses on a non-taxable basis.
Under the accountable plan, employees must:
Benefits:
A non-accountable employee expense reimbursement plan does not follow the IRS guidelines for an accountable plan. These plans are simpler to manage but offer less tax advantage.
Employees don't need to submit detailed expense reports, but:
For more information, please refer IRS 26 CFR 1.62-2: Reimbursements and other expense allowance arrangements.
See how Fyle’s automated approvals can benefit your organization.
It depends. If you have an accountable reimbursement plan in place, receipts are required to ensure proper documentation and avoid implications.
The IRS generally does not require receipts for a non-accountable plan. However, as a best practice, it’s recommended that you keep your receipts safe, as they are the only accepted proof of purchase if the IRS ever audits you. Saving receipts is often a huge headache for employees and business owners, which is why most businesses are adopting paperless receipt management.
The entire reimbursement for business expenses under a non-accountable plan is considered taxable income to the employee. This means the employee will receive the reimbursement amount on their W-2 and owe income taxes on it.
In contrast, accountable plans allow employees to be reimbursed for legitimate business expenses without them being taxed on the reimbursement. For accountable plans, receipts are required for the employee to claim the deduction for business expenses.
For more information, please refer IRS 26 CFR 1.62-2: Reimbursements and other expense allowance arrangements.
Reimbursements should occur promptly. Employees shouldn’t have to wait for too long to get back the personal funds they spent on behalf of the organization.
The answer to this question depends on your company’s typical reimbursement volume, frequency, and how much time your accounting team can dedicate to managing each option.
This is often the simplest and quickest method. Just add a reimbursement line item to their next paycheck. For accountable plans, these reimbursements are added without income tax withholding.
The accounting team can write individual checks for reimbursements, either based on each expense report or in a monthly batch.
If you use an expense management platform, reimbursements can be automated. Many platforms, like Fyle, allow employees to receive reimbursements with just a single click, typically through ACH transfer.
Fyle lets you submit and track receipts using text messages and other everyday apps like Slack, Gmail, Outlook, and Teams, making the process faster and easier for employees.
Fyle's AI checks expenses against pre-configured policies before submission, flagging any potential issues.
Fyle allows for secure and fast reimbursements directly deposited into employee accounts via ACH (US only).
If you’re feeling the pain of managing expense reports and reimbursements, you are not alone. We work with small businesses across the U.S. daily to streamline the entire expense reimbursement process, from tracking and reporting to approvals and reimbursements.
Our services are affordable for businesses of all sizes and are designed to be more cost-effective than manual expense reporting. See for yourself! Schedule a demo today and discover how Fyle can revolutionize your expense reimbursement process.