Expense policy best practices and template

An expense policy is a written document that outlines which expenses employees can spend on and get reimbursed by your business. While expense policies will differ from one company to another, they generally manage how much and when employees can spend on certain expenses, how to write expense reports, and the process of reimbursement.

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Implementing an expense policy for your business is important for several reasons. The most important one is that it helps manage your business's spending. It does so by helping you stick to a set budget and minimize the chances of overspending and mismanagement of business funds by having a set budget for each expense.

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It's also essential for preventing expense report policy fraud. Sometimes, employees intentionally or unintentionally spend money on personal expenses and claim reimbursements. With an expense policy in place, the chances of this happening are minimal because it'll have outlined all the types of expenses employees can ask to be reimbursed for.

How do you write an expense policy?

When you decide to write an expense policy, there are several things you must include so that it serves its purpose. These include:

• Purpose and scope
• Expense categories
• Expense approval process
• Documentation requirements
• Non-reimbursable expenses
• Expense reimbursement

Components of an expense policy

Let's examine each of these in detail and what you should cover. An expense policy example in the form of a template showing how to include each of these will follow in the next sections.

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Purpose and scope

This is a sort of introduction to the expense policy. It should, therefore, outline the reason for creating the policy. It should also explain to whom the expense policy applies and the departments.

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Expense categories

You should include all the types of expenses your business allows its employees to spend company money on and indicate spending limits for each. This section should be detailed to make sure there's no room for misinterpretation and vagueness. Your policy can break up this section under the following subcategories:

• Travel expenses
• Meals and entertainment
• Office supplies and equipment
• Employee training and development
• Health and wellness expenses
• Client-related expenses

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Expense approval process

Once you've covered all the expenses that your company will cater for, you must outline how these expenses, once filed, will be approved. Make sure you outline all the individuals involved in the approval process (approval hierarchy), from the employee who incurred the expense moving up to higher levels of management.

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It's also important to describe how employees should submit expense reimbursement requests. For instance, you can specify the timeline for submitting expenses, the medium to use, such as email or expense management software, and how long approvals should take.

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Documentation requirements

If your expense approval process requires evidence to accompany expense reports, you must outline the different types of documents employees must provide and the format. Most businesses require evidence of expenses in the form of receipts, invoices, payment notifications, etc. This may be in the form of scanned copies, pictures of documents, or screenshots.

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Non-reimbursable expenses

Your expense policy should also cover all the expenses your business will not reimburse your employees for. This section should have an exhaustive list so that there's no misunderstanding. If possible, ensure you clearly define each and provide examples. You can include things like:

• Personal expenses (make sure to provide a comprehensive list under this subcategory)
• Non-business meals
• Over-the-limit expenses
• Late submissions
• Expenses without receipts
• Personal penalties or fines
• Purchases from unauthorized suppliers or vendors
• Pending and unapproved expenses

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Expense reimbursement

It's also important to include a reimbursement process section in your expense policy. Under this section, you should cover:

• How long the reimbursement will take
• The payment method for reimbursing employees
• Which financial period the reimbursements will be made

What makes a good expense policy?

Writing a good business expense policy isn't just about being comprehensive; it's also about ensuring it remains effective and helpful throughout your business's lifetime. Some best practices for writing and maintaining a good expense policy include:

• Make sure the expense policy is simple and clear. Avoid using a lot of technical jargon and use simple, easy-to-understand language.
• Keep updating your expense policy. As your business grows and evolves, so should your expense policy. What may have worked when you were starting definitely won't work five or ten years later.
• Make the policy easily accessible to all employees. You can use the company intranet, a printed handbook, or a dedicated expense management software platform.

Expense policy template

[Your Company Name] Expense Policy

Effective Date: [Insert Date]

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1. Purpose and Scope

Purpose: The purpose of this Expense Policy is to establish guidelines and procedures for reimbursing business-related expenses incurred by employees while conducting company business.

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Scope: This policy applies to all employees, contractors, and authorized representatives of [Your Company Name].

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2. Expense Categories

The following expense categories are eligible for reimbursement under this policy:

• Travel
• Meals
• Accommodations
• Office Supplies
• [Add any additional categories specific to your organization]

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3. Expense Approval

All expenses must be pre-approved by the respective department head or manager. Expenses exceeding [dollar limit] require approval from [higher authority or department].

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4. Documentation

To request reimbursement, employees must provide the following documentation:

• Original receipts or invoices
• Completed and approved expense reports
• Any additional supporting documents as required

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5. Non-reimbursable Expenses

The following expenses are not eligible for reimbursement:

• Personal items
• Fines and penalties
• Expenses in violation of this policy

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6. Expense Reimbursement

Reimbursements will be processed within [number] business days after the approval of the expense report.

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Reimbursements will be made through [choose payment methods, e.g., direct deposit, checks, electronic payment platforms]. Employees can specify their preferred payment method by [describe the process for setting or updating payment preferences].

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Employees are responsible for reporting any reimbursed expenses that may have tax implications. Consult with a tax professional for guidance.

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For expenses in foreign currencies, the exchange rate used for conversion will be [mention rate or method]. Any currency exchange fees incurred will not be reimbursed.

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7. Updates and Revisions

This policy will be reviewed annually or as needed. Any updates or revisions will be communicated to all employees.

How to automate your expense tracking

A company expense policy is necessary for expense tracking, especially if your employees frequently handle your business's cash. However, like many business processes, expense reporting and approvals can be lengthy and time-consuming.

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Luckily, you can automate expense tracking with tools like Ramp. Ramp's expense management software provides the following features that help streamline this process:

• Let your employees send pictures of their receipts on the go via SMS or through the mobile app
• AI-generated categories and memos to speed up the process of expense reporting
• Integration with popular services like Uber, Lyft, and Gmail for easy collection and matching of receipts
• Set controls over vendor categories, expense types, and spending limits
• Know who approved expense reports by creating a customizable approval trail