Expense reimbursement policy: 5 best practices for employers

Managing employee expenses isn’t just a necessary task—it’s a critical part of maintaining financial clarity and fairness within a company.

Without a clear expense reimbursement policy, businesses can quickly face inconsistent claims, confusion, and even disputes over what qualifies as reimbursable. On the other hand, a comprehensive, well-structured expense reimbursement policy helps eliminate these issues by providing a consistent framework for employees to follow, putting everyone, from employees to the C-suite, on the same page.

This guide is designed for finance teams, HR managers, and business owners who want to streamline their expense management processes. From defining reimbursable expenses to automating the approval process, we’ll walk you through the best practices that will help your company keep business expenses organized and build trust and transparency with your employees. Ready to optimize your reimbursement system? Let’s get started.

What is an expense reimbursement policy?

What is expense reimbursement? Expense reimbursement is the process employers use to compensate employees for out-of-pocket expenses incurred while performing work-related tasks. 

An expense reimbursement policy is a formal set of guidelines that outlines how employees are compensated for business-related expenses they incur while performing their job duties. These expenses can include travel, office supplies, meals, professional development, and other expenses that occur while on the job. An expense reimbursement policy exists so employees can be fairly reimbursed in a timely manner while also providing the company with a clear framework to track and manage its financial obligations.

The importance of an expense reimbursement policy cannot be overstated. It creates consistency, reduces the potential for disputes, and helps make sure that only legitimate business expenses are reimbursed. By clearly defining what qualifies as reimbursable, it also helps control costs and keeps the company’s financial reporting in line with legal and tax requirements.

How to create an effective expense reimbursement policy

An effective expense reimbursement policy is one that is easy to understand, fair, and enforceable. By following the steps below, you can start to develop a clear and consistent policy for your organization.

Step 1. Define what counts as reimbursable expenses

The first step in creating an expense reimbursement policy is to clearly define what qualifies as a reimbursable expense.

Reimbursable business expenses often include:

• Business travel
• Office supplies
• Meals during meetings or business trips
• Professional training or development
• Work-related bills like internet or phone bills
• In some cases, even expenses related to a home office, like a portion of an employee’s rent or mortgage, could be considered a reimbursable expense

Because there’s a wide range of potential expenses, depending on your business type and industry, it’s important to be specific about what’s allowed and provide examples to prevent confusion. For example, you might specify that travel expenses include airfare, hotel stays, and meal allowances, but not personal entertainment or luxury upgrades.

Step 2. Create guidelines on how employees should report expenses

Once you’ve defined reimbursable business expenses, the next step is to provide clear guidelines on how employees should report these costs. Outline the documentation required, such as receipts, invoices, expense reports, or credit card statements, and specify when, where, and how they should be submitted.

For example, you might require employees to submit an expense report along with digital receipts within 30 days of incurring the expense. Having clear reporting guidelines promotes transparency and a smooth reimbursement process.

Step 3. Establish approval processes and assign responsibilities

To increase accountability, define the approval process for expense reimbursements in your policy. Specify who is responsible for reviewing and approving expense claims—whether it’s department heads, direct supervisors, or the finance team. Create a workflow that makes it clear who needs to approve business expenses at each stage and within what timeframe.

Having a structured approval process not only speeds up reimbursement but also minimizes the risk of unauthorized spending.

Step 4. Automate the reimbursement process

Automating your reimbursement process can save time, reduce errors, and improve efficiency, so look for an expense management tool that allows employees to submit business expenses digitally, managers to approve them with a click, and finance teams to process reimbursements faster and in a more streamlined fashion. Automated systems also offer real-time tracking, which can help prevent delays and reimburse employees more quickly.

Expense reimbursement policy example

Here’s an example of a basic expense reimbursement policy for a tech company. Keep in mind that this is just a starting point—your real-life policy should be much more comprehensive than this, as well as tailored to your business needs and goals.

Policy overview:

At Tech Innovators Inc., employees are eligible for reimbursement for specific business-related expenses that support the company’s operational goals. These include travel for conferences, client meetings, necessary office supplies, and approved training programs. All business expenses must align with the company's budget and receive pre-approval from department heads when necessary.

Qualifying expenses:

1. Business travel expenses: Employees can be reimbursed for airfare, hotel stays, and meals during business travel. Travel must be booked at least 14 days in advance for economy class, and accommodations should be moderate in cost (e.g., business hotels).
2. Office supplies and equipment: Purchases of essential office supplies, such as computers, software, and peripherals, are reimbursable with prior approval from a manager.
3. Meals and entertainment: Meals with clients, partners, or during business trips are reimbursable up to $50 per diem with itemized receipts.
4. Professional development: Training programs, certifications, or industry events that contribute to the employee’s professional growth are reimbursable upon approval from management.

Reimbursement procedure:

• All business expense reimbursement claims must be submitted within 30 days of when the expense was incurred.
• Employees must fill out the company’s digital expense reporting form, attaching scanned receipts or proof of purchase for all reimbursable expenses.
• Expenses incurred over $500 require prior approval from the department head and will go through an additional review by the finance team.
• Reimbursements are processed and paid back within 10 business days once approved.

Reimbursable business expenses

When setting up your own expense reimbursement policy, one of the most important steps is defining what types of expenses are reimbursable. Here are some of the most common expenses companies reimburse for their employees:

1. Travel expenses

Travel-related expenses incurred during business trips are typically reimbursed. These can include airfare, lodging, meals, ground transportation (such as rental cars, taxis, or rideshare services), and a per diem rate or other incidental expenses. Many companies have spending limits, like economy-class flights and daily meal allowances, to help manage expenses during travel.

2. Office supplies and equipment

Purchases of necessary office supplies, such as notebooks, pens, printer ink, or even larger items like monitors or keyboards, are often reimbursable if they’re made for business purposes. In a remote work environment, companies may also reimburse employees for home office setups, such as desks and ergonomic chairs.

3. Meals and entertainment

Expenses incurred when entertaining clients or partners, or meals during work-related travel, are often covered by the employer. It’s common to set a daily limit or per diem rate (e.g., $50 a day for meals), and require itemized receipts when submitting expenses for reimbursement to avoid fraud. Some companies also reimburse for employee meals if they work late or attend after-hours company events.

4. Training

Professional development is a common type of expense many companies reimburse for their employees—especially technology or finance companies that need their workforce to stay current with industry trends. These types of expenses can include courses, certifications, conference fees, or workshops that help employees build or increase their skills and expertise.

5. Internet and phone bills

For employees who work remotely or travel frequently, internet and phone expenses may be included in the expense reimbursement policy. This can include the cost of home internet for remote workers or phone bills for employees who use their personal devices for work. Many companies offer a flat monthly reimbursement to simplify the process.

5 expense reimbursement policy enforcement best practices

These expense reimbursement policy best practices create clarity for employees and help finance teams manage company spending:

1. Require pre-approval for high-value expenses

For large expenses, implement a pre-approval process to avoid surprise costs and maintain control over your company’s budget and cash flow. 

High-value expenditures—such as airfare, conference fees, or expensive equipment—should be vetted by a manager or department head before the purchase is made. For example, you may set a threshold (e.g., $500 or more) that triggers a mandatory pre-approval requirement.

2. Establish spending limits

Spending limits help encourage fiscal responsibility by setting a cap on how much can be spent in different expense categories. Whether it’s limiting meal costs during business trips or setting a maximum budget for office equipment, reasonable spending limits keep employees mindful of costs and prevent overspending. Make these limits clear in your policy and adjust them as needed based on company growth, inflation, or industry standards.

3. Utilize real-time expense monitoring and alerts

Real-time expense reporting and monitoring gives businesses the tools to track spending as it happens, giving them greater oversight and control over their finances. Implementing a system that triggers alerts when spending exceeds certain thresholds can help the finance team catch discrepancies early, detect fraud, and avoid budget overruns. For example, if an employee’s expenses are approaching the set limit for a business trip, a real-time alert can prompt a review to make sure the employee is staying compliant with the company expense policy.

4. Implement automated expense management tools

Manual processes are prone to errors and inefficiencies, so automating the expense management process using expense management software is a best practice that saves time and reduces mistakes. A tool like Rippling can automate expense reporting, submissions, approvals, and reimbursements, streamlining your processes, reduce the risk of human error, and give you a central platform for managing all your expenses.

5. Set clear deadlines for submissions

To avoid reimbursement delays and make sure expenses are reported in a timely manner, establish firm deadlines for expense reporting and submissions. Employees should be required to submit reimbursement expense reports within a certain timeframe, such as 30 days after the expense is incurred. Setting clear deadlines encourages employees to submit their claims promptly, reduces the risk of lost documentation, and minimizes delays in processes as you reimburse expenses. Make sure to also enforce deadlines consistently—this helps maintain order and predictability within the reimbursement process.

Why does your company need an expense reimbursement policy?

There are many benefits to creating an expense reimbursement policy for your organization. Implementing an official policy will help you maintain financial transparency, control costs, and be more fair. Without a clear set of guidelines, employees may be confused about what constitutes a reimbursable expense, and your company risks inconsistent claims or even disputes. A well-defined policy standardizes the process of making and fulfilling reimbursement claims, creating clarity for both employees and management.

Another critical reason for having an expense reimbursement policy is tax compliance. Businesses need to properly document their reimbursed expenses to comply with IRS guidelines around accountable plans, which allow for reimbursements for business-related expenses to be deducted from employees’ taxable income. Having a comprehensive expense reimbursement policy in place will help your business track and document expenses and reimbursements, which can be crucial in the event of an audit or tax dispute. Additionally, it helps your company adhere to employment laws that require fair and timely reimbursement of expenses incurred by employees during the course of their work.

Finally, an expense reimbursement policy fosters employee trust by making sure all employees are fairly compensated for their out-of-pocket costs. Your policy sets the rules, procedures, and steps for employees to follow, minimizing delays in getting them paid back when they pay for business expenses. It also relieves your HR and finance teams of unnecessary administrative burdens.

Whether your company is large or small, a reimbursement policy is a must to build employee trust and keep operations running smoothly.

Simplify your expense reimbursement policy with Rippling

Automate expenses with complete control. Expense reporting with real-time policy checks, seamless approvals, and direct accounting integration. 

Rippling consolidates all of your company’s finances—from payroll and benefits to corporate cards and expense management–giving you an up-to-date view of cash flow across your company and offering unprecedented control over spending patterns.  

While most expense management solutions only allow for basic employee-manager approval chains, with Rippling expense management’s advanced policy engine, you can set hyper-custom policies based on the vendor, dollar amount, and expense category, helping you block out-of-policy expenses with ease. You can also tee up automated workflows that help you control spend, like triggering an alert when a department’s expenses sharply increase. 

With Rippling you can: 

• Automatically route expenses and bills to the right approver every time. 
• Flag out-of-policy spending with hyper-custom policies, like by vendor or value, for further review. 
• Close the books faster with AI-powered transaction categorization, and integration with your accounting systems.

Frequently asked questions

What expenses are usually covered in an expense reimbursement policy?

An expense reimbursement policy typically covers a wide range of business-related expenses, such as:

• Travel expenses, like airfare, lodging, meals, and transportation
• Office supplies, including computers and software
• Meals and entertainment, including client lunches and business dinners
• Training and development, like fees for courses, certifications, and conferences
• Phone and internet bills 

Do startups and small businesses also need an expense reimbursement policy?

Yes, startups and small businesses benefit from having a clear expense reimbursement policy just as much as larger companies. Even with fewer employees, it’s important to standardize how expenses are tracked and reimbursed to avoid confusion, overspending, or potential disputes. A well-crafted policy also helps small businesses stay compliant with tax regulations and employment laws, while fostering trust and transparency with employees.

What is the IRS policy for expense reimbursement?

The IRS allows companies to reimburse employees for business expenses under an “accountable plan,” which requires that employees submit receipts or other documentation to prove that the expenses were directly related to their work. Under this policy, reimbursements are not considered taxable income as long as they meet the IRS guidelines. The documentation must include details like the amount, time, and business purpose of the expense, and employees must return any excess reimbursements within a reasonable timeframe.

What is a Travel and Expense (T&E) policy?

A Travel and Expense (T&E) policy is a set of guidelines that governs how employees can reimburse expenses for work-related travel. It outlines acceptable travel costs—such as airfare, lodging, meals, transportation, and mileage reimbursement—as well as entertainment expenses for client meetings or events. The policy also specifies limits on spending (such as reasonable daily amounts for meals), documentation requirements, and the process for getting approval before and after the trip.

What is the cost of a reimbursement policy?

The cost of a reimbursement policy largely depends on the company’s size, the nature of the business, and the types of expenses being reimbursed. While there is no direct cost for creating the policy itself, implementing it may require administrative effort for tracking, approval, and reimbursement. Expense management software can reduce the manual workload by automating some of the process.

This blog is based on information available to Rippling as of September 23, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.