Guide to business travel expense reimbursement: Definition, management, and best practices

Business travel can be exciting for employees, but the travel expense reimbursement process can be a headache if you don’t have the right procedures in place. An efficient travel reimbursement process ensures employees aren't financially burdened by work-related travel and can focus on their actual job responsibilities.

In this guide, we go over all things travel reimbursement, including expense reports, common business expense categories, tax regulations, and tools and strategies to help improve your company’s travel expense reimbursement process.

What is travel expense reimbursement?

Travel expense reimbursement is the process by which companies pay back their employees for the charges they incur while traveling for business. These charges include airfare, hotel rooms, rental cars, rideshares, meals, client entertainment, and other travel arrangements.

Because travel-related expenses are often variable and most are incurred during the trip, it can be hard to pay for them upfront. As a result, many businesses use traditional expense management software that requires employees to use their own funds for purchases and submit their expenses for reimbursement post-trip.

10 common travel expenses

Before we dig deeper into the expense reimbursement process, let’s take a look at the types of expenses that may appear on an expense report. While some may fall into the same business expense category, we’ve intentionally kept this list more granular to help you better understand what they are and why they should be reimbursed.

1. Per diem

Per diem is a Latin phrase that means “by the day.” Businesses use per diem allowances as a cost control measure for employees on multi-day trips. The employee can submit a flat-rate line item on their expense report that includes all their out-of-pocket expenses—incidental expenses and otherwise—up to an approved amount. Most travel and expense reimbursement policies don’t allow meal expenses if they offer a per diem.

2. Plane tickets

When an employee needs to fly to meet a client or attend a conference, it counts as a reimbursable travel expense. Many companies make it easier by paying for roundtrip airfare at the company level before the trip. Still, an employee booking their own travel could earn miles for later personal travel or other credit card travel rewards. Employees who want to upgrade to first class generally need to pay the difference out of pocket.

3. Rental cars

Rental cars are generally regarded as a reimbursable employee travel expense. Some reimbursement policies put a per diem rate on rental car fees to keep costs down. If the employee wants to upgrade and get a luxury sedan or SUV, they have to pay the difference out of pocket. They could also opt for a rideshare or public transit to be more cost-efficient.

4. Rideshares

Apps like Uber and Lyft have created new transportation options for business travelers. They’re particularly useful for trade shows and conferences where employees only commute from the airport to the hotel or conference center and back. In congested urban areas like New York and Los Angeles, ridesharing is often a more efficient option than renting a car.

5. Mileage

If your employees use their personal vehicles for business travel, your travel and reimbursement policy should include a section on mileage reimbursement—whether you use the standard mileage rate or the actual expenses method. This common employee travel expense is often tricky to calculate, so it might require some special attention.

6. Lodging

Sending an employee to another state or country without setting up lodging is a recipe for disaster. Hotels, motels, and lodges can be booked upfront on the company credit card or paid for by the employee and submitted on an expense report for reimbursement. Watch for those room service charges and movie rentals—they often slip through the review process.

7. Meals

There are several ways to handle meals from a travel reimbursement perspective. We already mentioned the per diem option. Another choice is to simply have the employee keep a receipt for the meal and submit it as a separate line item on the expense report. Gratuities may or may not be included, depending on company travel expense policy.

8. Client entertainment

Wining and dining with clients or customers is fairly common for many businesses. Your team may need to take a prospect out to a baseball game or a fancy dinner to close the deal. But be careful, because this category could easily be abused if you’re not scrutinizing your expenses carefully.

9. Business supplies, equipment, and shipping

Business supplies and equipment could include a TV or monitor for presentations, pens and clipboards for clients to fill out forms, signage for a trade show booth, or the shipping costs to get it all there. This is a broad category that’s different for every business. If a traveling employee needs supplies or equipment to do their job, it’s normally a reimbursable expense.

10. Communications expenses

It’s important to stay connected while on the road. Business communications costs include company cell phone plans, faxes, and wi-fi costs your team incurs while traveling.

The challenges of travel expense reimbursement

Travel and expense (T&E) costs can be difficult to control when spending is left in the hands of employees and only realized weeks later. Here are a few of the key challenges in reimbursing travel:

• Keeping receipts organized: Assigning a travel budget and allocating a per diem for meals can help keep costs down, but that still requires reimbursement—and receipts the employee needs to organize. Since that isn’t their primary focus on a business trip, original receipts can be an afterthought.
• Timing: Travel expense reimbursement generally happens monthly or quarterly, so business travelers must pay their credit card balances on time. If the bill comes due before the reimbursement amount is processed, they’re under pressure to cover it out of pocket.
• Incorrect or lack of categorization: If costs like travel expenses, lodging expenses, and entertainment expenses aren't categorized correctly, the inefficiencies in a traditional travel reimbursement process can lead to higher costs, increased employee turnover, and potential tax problems.

Although the challenges seem overwhelming, much of this can be avoided using real-time expense management software, which we’ll discuss in more detail below.

How do travel expense reports work?

Let’s walk through a typical business trip to show how the travel expense report process comes to life.

Let’s say a company sends its marketing lead to an out-of-state conference. They’ve already booked and paid for the airfare, car rental, and other transportation costs. When the employee lands, they go to the rent-a-car company, swipe their credit card, and drive away with a car.

During their time away, they need to keep track of all their receipts for meals and incidentals. The final receipts will come when they return the car and check out of the hotel.

Once they come home, to submit their expense report, they need to make sure they’ve collected and organized all of their receipts, that everything is itemized, and that each serves a business purpose (in this case, gathering conference learnings to bring back to the team).

The problem with expense reports

Are you starting to see the problems with this system? When the employee is the primary payer of travel costs during a business trip, the company is counting on them to be organized enough to list every expense on an expense report and provide proof of purchase receipts to back those entries up. The expense can’t be submitted and reimbursed if they lose a receipt. Now the employee is paying for business travel with personal funds.

Let’s assume the employee does everything right and submits a thorough, organized expense report for reimbursement. That reimbursement request needs to go through an approval process that could take some time. Depending on the company's reimbursement policy, the actual reimbursement will come a few weeks or months after that.

Processing expense reports for travel reimbursements

The employee experience with expense reports is only one side of the equation. Their job is to make sure their expense report is accurate and well-organized. The company’s responsibility is to double-check that against the business travel expense and reimbursement policy, which takes time and resources.

This manual review of expense reports is another inefficiency in the expense approval process. Without expense automation, reimbursing travel can be highly inefficient. And humans, no matter how experienced they are, can make mistakes.‍

IRS rules for travel expense reimbursement

Regardless of your internal expense policy, the Internal Revenue Service (IRS) has determined what constitutes eligible travel expense deductions. Legal precedents in some states also require companies to reimburse employees for business-related travel expenses. The job of the expense auditor is to know about both.

Regardless of what your internal expense policy states, the Internal Revenue Service (IRS) has determined what constitutes eligible travel expense deductions. There are also legal precedents in some states that require companies to reimburse employees for business-related travel expenses. The job of the expense auditor is to know about both.

Tax write-offs for travel expenses

Your expense policy should allow reimbursement only for employee travel expenses that you can then write off as a deductible business expense on your taxes. There are several of these, and each expense deducted will need an associated receipt to protect your company in the event of an IRS audit. These are a few of the acceptable categories related to business travel:

• Travel expenses: This category includes airfare, tolls, taxes, and lodging. The IRS requires that the travel destination be away from the employee’s normal work location and that the trip be longer than one business day.
• Business entertainment: The meal cost of a client dinner is only deductible up to 50%. Catering an office party or event can be 100% tax-deductible. Be careful in this category—it’s the one IRS auditors look most closely at.
• Auto expenses: This category is most often used for business use of a personal vehicle. Businesses should also deduct rental cars here, not in the travel expense category above.
• Office supplies: When office supplies are required for a business trip, the costs are deductible in this category.
• Office furniture: Buying or renting a folding table and chairs for a presentation while traveling counts in the office furniture category. Make sure your employees know this if they request authorization to make such a purchase.
• Advertising and marketing: This might not seem like an expense that an employee would submit, but business cards and signage count as deductible business expenses.
• Education: Sending an employee on a trip to take classes or attend an accredited seminar can produce multiple deductible expenses. Separate them carefully. The class fees go into the education category, not travel expenses.

Travel expense reimbursement best practices

To overcome the challenges covered above, you can follow some best practices. Some will require manual effort, while others can be implemented by adding new tools to your tech stack.

Here’s what we recommend to manage your travel and reimbursement policies effectively:

1. Research reimbursement laws in your state: Your reimbursement policy must align with state and municipal requirements. Check local laws to verify this.
2. Update your expense and reimbursement policy: Too much spending freedom and minimal cozy controls make an expense and reimbursement policy inefficient
3. Make a list of deductible expense categories: Use IRS rules or ask your accountant which business expenses are deductible and which are not
4. Eliminate cash purchases: Take cash purchases off the table entirely. The IRS might deny them as deductions, and there’s too much room for expense fraud.
5. Implement real-time expense tracking and spend controls: Real-time expense tracking makes it easier to correct errors and control spending quickly
6. Issue corporate charge cards for employee travel: This puts spending and cost control in the hands of the company, not the employee. It will increase your bottom line.

Streamline travel expense reimbursement with Ramp

Managing travel expense reimbursements can be time-consuming and complicated no matter how capable your accounting team is. Fortunately, Ramp’s modern finance platform automates the most time-consuming parts of the process for you.

Ramp combines travel booking, expense management, AP automation, and financial reporting, helping you control costs, improve efficiency, and simplify your tech stack with a single solution. Using Ramp’s corporate cards, you get real-time expense tracking and cost control measures to avoid unauthorized purchases.

All you have to do is define your travel and reimbursement policies and Ramp Travel handles the rest, pulling compliant flight and hotel options into a single dashboard for employees to book. Once they’re on the road, our integrated expense management software collects data on every transaction for real-time expense tracking and automated expense reporting. And Ramp reimbursements make the process simpler for everyone.

Travel expense reimbursement doesn’t have to be a headache. Try Ramp and see why customers save an average of 5% a year.