Travel expense reimbursement: guide for employers

Published

Nov 25, 2024

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Even in this era of remote and hybrid work, travel is an essential part of doing business. Events, kickoffs, client meetings, sales pitches—a good chunk of your workforce is probably hitting the road at some point soon for these or other reasons.

That said, business trips are not as simple as booking a flight and heading out. Behind the scenes, finance managers need to work through a host of considerations in order to reimburse the expenses employees incur on business trips. This includes everything from defining what’s reimbursable and understanding how travel expenses impact tax reporting, to—this is a biggie—figuring out how to implement a travel-expense reimbursement policy efficiently at scale.

If you’re grappling with questions like these, you’ve come to the right place. Below we cover what you need to know to understand travel expenses reimbursement, from what it is and how it works to the legal requirements at play and best practices to manage it all. Let’s dive in.

What is travel expense reimbursement

When employees travel for work—which typically happens for conferences, sales meetings, workshops, trainings, and client meetings—they rack up expenses. Flights, hotels, rental cars, meals—you name it. Employees need to be reimbursed for the expenses they incur on the road, within reason and in accordance with your corporate travel policy and the law.

Business travel expenses usually unfold like this:

Employees incur expenses while they’re out of town for work.
Employees document those expenses by keeping receipts, transaction statements, or mileage logs.
Employees report their expenses by submitting them through designated expense-approval tools for their manager to review.
Managers review the expenses to make sure they were pre-approved, reasonable, and in line with company policies. Sometimes expenses undergo an additional layer of compliance reviews from HR or finance teams.
Employees are reimbursed.

The whole point is to make sure employees get paid back for whatever they shelled out in a timely and compliant manner, and to track and categorize spend so that it can be reported properly to the IRS.

10 commonly reimbursed travel expenses

Travel expenses can vary widely based on the employee’s seniority, the purpose of the trip, the distance traveled, and how long the trip lasts. Here are some of the most common business travel expenses to be mindful of:

Plane & train tickets: Travel by plane or train is typically reimbursed. Some companies may have preferred airlines and classes of seating. Checked baggage and other upgrades may be expensed as well—provided they align with your corporate travel policy.
Mileage: If employees drive their own cars for a work trip, they can seek reimbursement per mile at the IRS standard rate, which in 2024 is 67 cents per mile. The fee is based on an annual IRS survey that aims to capture the full cost of driving including gas, wear-and-tear, insurance, and other costs.
Meals: Meals can be expensed as part of a per diem (daily) allowance or at cost, as long as they’re in line with your employee travel expense reimbursement guidelines. These expenses can include snacks grabbed on the go, a soda from the vending machine, and other quick refreshments.
Lodging: If the business trip is overnight, employees should expense their hotel or rental property expenses as long as they are reasonable and necessary for the trip.
Rental cars: Often a rental car is necessary if employees are traveling somewhere that’s not walkable or well-connected with public transportation. Rental costs including fuel and insurance should be reimbursed in accordance with your travel policy.
Taxis, tolls, and transportation: While on the trip, if employees need a taxi or bus trip, those expenses typically qualify for reimbursement. Ditto parking and tolls.
Medical expenses: If employees require medical attention while they’re traveling for business—an urgent care visit or a prescription refill, for instance—those expenses may be covered as part of your corporate travel policy.
Business necessities like wifi or a co-working pass: If an employee needs wifi or a place to work while traveling, the costs they incur to stay connected are often reimbursable.
Event fees: If employees are traveling for an industry conference or a corporate event relevant to their role or industry, those expenses are typically reimbursed if they’re pre-approved.
Dry cleaning and laundry: If someone needs to wash their clothes while away on business—likely for more than just a few days—that’s typically covered by the employer.

IRS travel expense reimbursement regulations

The IRS allows businesses to deduct some employee travel expenses from their taxable income, but only if the expenses meet certain requirements. With that in mind, you may want to make sure you only allow reimbursement for travel expenses that can be written off as deductible business expenses. Expenses must be ordinary (meaning they’re standard practice in your industry) and necessary (they were incurred as a result of doing business), and they must appear on this IRS list of tax-deductible travel expenses.

How does travel reimbursement work

In order to maintain compliance with your company’s travel policy and IRS rules, make sure you have clear guidelines outlining which expenses are reimbursable for business travel, and instructions for how to claim reimbursement. Here’s a quick summary of what every travel expense reimbursement process should include:

Step 1: Collect and organize receipts

Documentation is essential if employees are to seek reimbursement for travel expenses. Most often that comes in the form of receipts, but sometimes billing statements or mileage logs are necessary depending on the nature of the expense. Make sure every employee understands that they may not be able to claim reimbursement without this documentation.

Receipts can be digital or paper, the important thing is they contain the date of purchase, the amount spent, the vendor, and an itemized list of what was bought.

Step 2: Fill out the travel expense reimbursement form

You’ll want to provide a standardized reimbursement form, also known as an expense report, that’s easy to fill out and submit. It should ask employees to share details about the expense for approval and categorization, such as the purpose of the trip, the day the expense was incurred, and the category it falls under (“lodging” or “meals and entertainment,” for example).

Step 3: Attach supporting documentation

Beyond receipts, ask employees to attach anything that provides proof that the expenses are legitimate and compliant with corporate policy. That could be an event invitation, mileage logs, itineraries, or otherwise. Make sure it’s clear upfront which types of documentation are needed for each type of expense, so travelers can store them for submission later.

Step 4: Submit the expense report

Provide instructions for how to submit the report to management or HR for approval. Make sure your policy makes clear what reviewers should check for—namely accuracy (dates and amounts correct?), compliance with your travel policy, and that the necessary documentation is attached—before passing it on to the finance team for processing.

Step 5: Receive reimbursement

Once the expense report is approved and processed, make sure employees know how they’ll be reimbursed. Usually it’s via direct deposit or payroll. Set clear expectations for when they can expect the payment to come through. For example, expenses approved before the 15th of the month will be paid out in the first half of the following month via payroll, or whatever your policy is.

4 challenges of travel expense reimbursement

There are a lot of moving pieces along the travel-expense reimbursement process, from handoffs and approvals to forms and records. If your process is manual, there’s a good chance you’re leaving the door open to errors, inefficiencies, and compliance risks. Drawbacks of a manual process include:

Time-consuming forms review

Manually completing, submitting, and reviewing forms takes considerable time. On the front end, employees need to manually enter the details of every expense. Managers then need to review for accuracy against receipts or logs. And finally, finance and HR approvers need to manually process the expenses for payroll and tax purposes. All told, that could amount to hours wasted per expense report.

Delayed reimbursement

Employees who’ve dipped into their own pockets to foot travel bills are likely eagerly awaiting reimbursement, and should not be kept waiting beyond the reimbursement timeframes laid out in your corporate expense policy. Hold-ups in approvals triggered by manual error—like a missed email or forgotten line item on a report—could put employees in a financial bind.

Higher risk of errors and non-compliance

Any manual process is prone to errors, but those made during travel-expense reporting could introduce tax-liability risks if the IRS ever comes knocking for an audit. Even seemingly insignificant human errors—approvers failing to verify the correct receipt is attached, or an approval that’s noncompliant with company or IRS rules— amplify this risk.

Reduced transparency

Manual expense reporting usually takes place over email, or on paper—neither of which are trackable in a centralized place. That can lead to a lack of transparency and accountability—which itself can introduce room for delays and errors. It also denies employees the ability to check-in easily on the status of their expenses, to make sure that they’re moving along as expected and on track for reimbursement.

Travel expense reimbursement best practices

If you’re looking to improve upon or build out a travel-expense reimbursement process, consider these best practices to save time, minimize errors, and improve compliance.

Understand reimbursement laws

First thing’s first—your reimbursement policy needs to be built around legal and regulatory compliance. Reimbursement laws vary from country to country, so be sure to consult with local accountants or lawyers where you do business. In the US, you’ll want to be compliant with IRS rules, for instance, and failure to adhere introduces the risk of fines and penalties if an audit finds evidence of noncompliance.

In the US, travel expenses are tax deductible if they are ordinary (standard practice in your line of work) and necessary (they were incurred as part of doing business). There is considerable nuance at play, however. Certain expenses—meals, for instance—may be deductible for travel but only partially deductible otherwise, depending on how and when they’re expensed.

Update the expense and reimbursement process continuously

Creating a travel-expense reimbursement policy is not a one-time effort. Rules change frequently as laws are passed, amended, and repealed. Tax agencies also regularly update their limits for deductions and reimbursements, for example, to account for inflation. To ensure that you’re always up to date and compliant, ensure that you rigorously review your practices and policies on a regular basis, or have in-house or outside advisors do so.

Streamline travel-expense approvals with Rippling

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Eliminate cash purchases

Cash transactions can be notoriously difficult to track because there is no electronic record beyond a receipt. With that in mind, it’s best to encourage employees to pay for business-travel expenses with credit cards or other digital methods to ensure there’s proper documentation associated with the expense in case it’s needed during approvals or audits. As a bonus, card transactions can be more easily integrated into your expense-approval and reimbursement software, which can reduce the admin burden on employees by simplifying and automating parts of the reporting process.

Automate processes with travel-expense software

Travel-expense software can streamline and automate parts of your travel-expense reporting and approval process, to save employees time completing tedious tasks while also reducing the risk of manual error. Some tools can even flag noncompliant expenses, acting as an additional layer of approval and compliance review. Many come with mobile apps that allow employees to scan and store receipts on the go. Others may integrate with your travel management software that employees use to book flights and other arrangements.

Rippling: Easily track and report your business expenses

Rippling is an all-in-one workforce management platform that can streamline your travel-expense reimbursement process. Its expense management features allow companies to automatically route reimbursement requests to the right approvers, assign vendor controls and spending limits, and sync transactions to their general ledger.

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.

Most expense management solutions only allow for basic employee-manager approval chains, but with Rippling expense management’s advanced policy engine, you can set hyper-custom travel-expense 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 travel 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.
Integrate with finance and payroll so that employees can be paid faster and with fewer handoffs across teams.

Travel expense reimbursement FAQ

Can a company refuse to reimburse travel expenses?

Technically, the Fair Labor Standards Act does not require companies to reimburse travel expenses. That said, some states, such as California, have explicit laws that require employers to reimburse employees for expenses incurred on the job. Nonetheless, employers usually reimburse travel expenses that are pre-approved, ordinary and necessary (in the sense that they meet IRS qualifications for deductibility), reasonable, and in accordance with their corporate guidelines for T&E.

How should expenses be documented if receipts are lost?

If receipts are lost, gather all the documentation supporting the purchase available, such as bank statements, credit card statements, invoices, bills, contracts, calendar appointments—whatever you can produce. In the event of an audit, the IRS wants to see the vendor, the amount paid, the time and date of the transaction, and what was purchased (in order to determine that it was a business-related purchase).

How can foreign currency expenses be handled?

US companies incurring foreign-currency expenses must express those expenses in US dollars on tax returns, so those foreign-currency expenses will need to be converted into US dollars using the prevailing exchange rate at the time of the purchase. If your functional currency is not the US dollar, you can make all income tax determinations in your functional currency and then translate the final results of your return into US dollars when you file.

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