Expense reimbursement policy tips and best practices

If you or your employees are spending their personal funds to make business purchases, you need an effective way to be reimbursed. If your company doesn’t have an expense reimbursement policy, now is the time to consider it.

A clear reimbursement policy is a really important way to effectively manage expenses. In particular, it helps reduce excess spending, control costs, and maximize your business tax benefits.

In this article, we explain what an expense reimbursement policy is, best practices for creating a policy for your business, and tips for enforcing your policy.

What is an expense reimbursement policy?

An expense reimbursement policy is a set of guidelines that specify how employees are reimbursed for their out-of-pocket expenses on behalf of your business and how they’ll be paid back. The policy defines:

• Which expenses qualify for reimbursement
• How to report expenses
• The approval process for how and when employees will get reimbursed
• What kind of documentation they need to provide to support reimbursement requests

‍Why do you need an expense reimbursement policy?

There are many reasons why your business needs an expense reimbursement policy, particularly if your employees are spending their own money for work-related expenses.

Here are a few of the top reasons why creating a policy is in your best interest:

1. Promote fairness and transparency: A good policy ensures that all employees are treated fairly when they spend their money for business purposes and provides transparency around how reimbursement requests are approved
2. Effectively manage expenses: By setting clear guidelines around which expenses are reimbursable and to what extent, the policy helps control and manage costs
3. Optimize tax benefits: The policy aids in accurately accounting for tax-deductible expenses, ensuring your business can take full advantage of tax benefits‍
4. Prevent expense fraud: Through clear documentation requirements and approval processes, the policy helps you detect and prevent expense fraud

What are examples of reimbursable business expenses?

Reimbursable business expenses typically include costs like travel expenses, meals during business meetings, office supplies, and mileage covered while performing job-related duties.

Here are some common types of expenses you’ll find in most reimbursement policies:

1. Business travel expenses: Airfare, hotel accommodations, rental cars, taxi fares, and even parking fees for business trips and employee travel
2. Mileage reimbursements: Employees who use their personal vehicle for work-related travel are usually entitled to mileage reimbursements. The standard mileage rate set by the IRS encompasses gas, wear and tear, and car insurance and depreciation.
3. Office supplies: Office supplies deemed necessary to run your business, including pens, printer paper, light bulbs, and cleaning supplies
4. Training and development: Employee reimbursement for any out-of-pocket expenses for trainings related to their job responsibilities
5. Meals and entertainment: Business meals with clients or customers, with other employees during business meetings, or while traveling for work-related purposes, and entertainment expenses related to business goals

Best practices for creating an expense reimbursement policy

Creating an effective expense reimbursement policy requires a thorough understanding of your company’s needs as well as the employment and tax laws in your jurisdiction.

Certain states, and even some municipalities, require employee reimbursements by law. As you get started, you should always be aware of any legal obligations you have based on your location, or locations where you have remote employees working so you can tailor your expense reimbursement policy to meet them.

With that in mind, here are some best practices to get you started on your expense reimbursement policy.

1. Outline what qualifies as a reimbursable expense (with examples)

One of the most important purposes of your expense reimbursement policy is to control spending. That means your policy should clearly define what qualifies as a business expense, what expenses will and won’t be reimbursed, and the maximum amount you’ll reimburse by expense type.

Try to offer example scenarios so employees can visualize how they should use the policy in real life.

For example, consider an employee, Sarah, who is required to travel out of town for a client meeting. According to the policy, her transportation and lodging are both reimbursable expenses, and she has a $75 per diem rate for meals. Sarah books a round-trip flight and a hotel room for two nights and keeps all the receipts. Upon return, she submits an expense report with all the itemized receipts attached, as per the policy guidelines.

The report is then reviewed by her manager, who finds she spent $95 for meal expenses on her first day of travel, $20 more than the maximum allowable per diem. Sarah’s manager returns the report and asks her to amend it to reflect the policy’s travel meal guidelines.

An example scenario like this can help everyone understand the process of incurring, documenting, and receiving reimbursement for business-related expenses, demonstrating a practical application of the policy in a real-world setting.

2. Define how employees should create expense reports

This is where you establish your expense reporting process, including requirements for proper documentation of reimbursable expenses, the timeline for submitting expense reports, and expectations for when and how employees will be reimbursed.

If you have a modern expense management automation platform, the reporting process is usually quick and painless. A manual process typically requires more work for everyone involved. In either case, the reporting process will be similar:

1. Employee incurs an expense
2. Employee prepares an expense report, with all required documentation attached
3. Employee submits their expense reimbursement requests
4. Report undergoes review
5. Report is approved or rejected

It’s especially important that your expense reimbursement policy is clear about the need for documentation and receipts, particularly if you plan to write off deductible expenses on your taxes. Make sure to define what you’ll accept as proof of purchase, including:

• Physical receipts
• Invoices
• E-receipts
• Digital photos or scans.

3. Establish your approval process and delegate responsibilities

You also need a process for expense approval and reimbursement by your finance team. Some questions to think about include:

• Who will review and approve expense reports?
• When will employees receive repayment?
• How will employees receive reimbursements—through direct deposit, cash, or some other method?

Your policy should clearly state who’s responsible for approvals to keep everything moving smoothly. Be sure to design your approval workflow in such a way that no one is responsible for approving their own expense report, which could present the risk of expense fraud.

It’s also important to clarify your timeframe for approval and reimbursement. You can include reimbursement as part of an employee’s regular paycheck or issue a separate payment—whatever works best for your organization and workflow. But to avoid frustration, make sure reimbursement doesn’t take more than a couple of weeks.

4. Review and launch your policy

Once you’ve completed the documentation, you may want to run a trial with a small group of employees to see how the policy works in real life. This also gives employees the chance to provide feedback, which could yield some areas of improvement.

After incorporating feedback, you’re ready to communicate your reimbursement policy to all employees through channels like email, company meetings, or your company’s internal communication platform. Your policy should be clear, easy to follow, and easy to locate or bookmark so employees can find it when they need to.

From there, it’s important to periodically review the policy. Quality and compliance audits ensure the policy remains relevant and that your team is actually using it. Then, you can update as necessary based on feedback or changes to company procedures.

Tips for enforcing your expense reimbursement policy

After rolling out your expense reimbursement policy, you need to enforce it to maintain control over company spending and avoid expense fraud. Fair and consistent enforcement is crucial for financial health, compliance, and fostering a transparent working environment.

Common issues with reimbursable expenses

While a clear and effective policy solves for most issues, there are some challenges that you might face when reimbursing your employees. They include:

• Non-compliance with policies: Employees submitting unauthorized expenses can cause headaches for your processes and your budget
• Delays in submitting reports: Bottlenecks can hold things up if your team is not submitting their expense reports in a timely manner
• Manual inefficiencies: If you’re handling your expense reports and reimbursements manually, it could take time and energy that can be better spent elsewhere in your business

How automation can help

The easiest and most effective way to enforce your policy is to use an automated expense management system that:

• Streamlines the submission, approval, and reimbursement processes
• Tracks expenses in real time to monitor spend
• Establish spending limits
• Ensures compliance

Expense management software is often used in tandem with company credit cards. When coupled with expense automation software, corporate cards allow you to enforce your expense policy through custom controls. And because purchases are made on a company card, you won’t have to deal with reimbursements.

How Ramp simplifies expense reimbursement policy enforcement

Creating and enforcing expense reimbursement policies often feels like herding cats. You're juggling manual receipt collection, chasing down missing documentation, and trying to ensure employees follow spending guidelines—all while processing reimbursements quickly enough to keep your team happy. The result? Finance teams spend countless hours on administrative tasks instead of strategic work, and policy violations slip through the cracks.

Ramp transforms this chaotic process through automated expense management that enforces your policies before spending happens. With Ramp's corporate cards, you can set granular spending controls at the merchant, category, or individual level.

Need to limit software subscriptions to $500 per month? Done. Want to restrict travel bookings to approved vendors? Easy. These controls work in real time, automatically declining transactions that fall outside your policy parameters. This means no more awkward conversations about out-of-policy expenses after the fact—your policies enforce themselves.

For expenses that do require reimbursement, Ramp's receipt matching technology eliminates the manual chase. Employees simply snap a photo of their receipt, and Ramp automatically matches it to the corresponding transaction, extracting merchant details, amounts, and categories. The platform flags missing receipts and sends automated reminders, ensuring you maintain complete documentation for audit purposes. Your accounting team can review and approve reimbursements in bulk, cutting processing time from days to minutes.

Perhaps most importantly, Ramp provides real-time visibility into all spending across your organization. Finance leaders can spot policy violations as they happen, identify spending trends, and adjust policies based on actual usage data. Instead of discovering problems during month-end close, you're proactively managing expenses throughout the month. The result is a reimbursement process that practically runs itself while maintaining the control and compliance your business needs.

Put your expense reimbursement policy on autopilot

Ramp's modern finance operations platform handles the heavy lifting of enforcing your expense reimbursement policy, allowing your staff to focus on more strategic work. More than 40,000 businesses have saved 27.5 million hours with Ramp. What could your team do with that kind of time savings?

Try an interactive demo and see how Ramp can help.