For organisations of all sizes, travel and expenses are essential for daily operations and growth. But how do businesses decide which are acceptable business expenses and which are not? Here’s where official business travel expense management policies come into play.
Making business travel expense management work for you
Without a formal policy, keeping track of employee expenditure can be a challenge. Approving expenses on a whim and giving everyone the authority to make significant purchases isn’t great for company finances.
And if left unchecked, the business travel expense list can easily get out of hand and eat up funds that the company needs for other purposes.
To manage travel and business costs more effectively, company management can establish a standard set of guidelines that apply to all employee expenditures. These policies will enable the management to define eligible business expenses and make it simpler for employees to adhere to corporate policies when travelling for business.
In this article, we discuss the importance of travel and expenditure management as well as some of the common challenges that arise. We’ll also list down key tips, tools, and resources you can use to create a solid T&E policy and better manage your company’s expenses.
What is travel and expense management?
Travel and expense (T&E) management is the process of documenting and processing business travel expenses for tax deductions. The legal definition of tax-deductible expenses depends on the country in which the business is based.
In most countries, business expenses are tax deductible, meaning businesses pay little to no tax. Additionally, for these purchases to qualify as a legitimate tax deduction, they must be business-related.
The tax organisation of each country also determines the particular expense reporting processes. But, no matter where you’re based, it’s crucial to disclose all relevant expenses to maximise and reduce your tax liability.
Some common business travel expenses include:
- Accommodation – lodging, hotels
- Transportation – gas prices, plane, train or bus tickets
- Entertainment – eateries, shows, and events
- Allowances – country-specific amounts for travel, lodging, and meals
- Electronics and other necessary equipment – smartphones, tablets, and computers
Employees sometimes pay for business expenses out of pocket before submitting an expense claim to their employer for travel expenses reimbursement. Employees should submit all expense receipts to the finance teams at the end of each fiscal closing period—which is often a challenge companies face.
What is a T&E policy?
Companies develop T&E policies to regulate how team members spend company funds on work travels and business-related expenses to simplify travel expense management.
T&E policies should cover all situations where employees engage in work-related activities away from the office. That includes both domestic and international travel, as well as day trips. However, when it comes to “remote work” situations, these T&E policies don’t apply, and organisations should look into creating an entirely separate policy for it.
Businesses of all sizes across various industries can benefit from implementing an internal travel expenditure strategy. A well-written T&E policy helps finance teams speed expense reporting and approvals by clearly defining what counts as necessary employee spending. This keeps companies compliant with tax laws and prepared for audits.
Your T&E policy should typically cover the following topics:
- Where to make reservations for travel
- The standards used for approving or rejecting an itinerary
- The travel expense reimbursement process
- Accepted flights and trains classes, expenditure limits, and budgets
- Accepted accommodations, including the star rating that is allowed based on location, as well as allowable and non-allowable additional costs
- Ground transportation regulations for personal vehicles, ride-sharing services, and rental cars
- Meal allowances
Business travel expenses employees can claim
The main requirement for claiming any expense is that it must have been wholly and necessarily incurred in the course of performing your duties as they relate to business goals. This means you should not personally benefit from the cost claim (as opposed to your business).
Some examples include:
- The price of the trip itself (flights, hotel costs, etc.)
- The cost of sustenance (your food and drink consumed during the period of travel)
- Other expenses incurred during your trip, such as entertainment
What doesn’t qualify as a travel expense
However, you must also consider what is excluded from business travel expenses. For instance:
- Commuting to and from your usual office
- Any travel made for personal reasons
Methods of business travel reimbursement
There are numerous ways to reimburse your staff for business and travel expenses. To avoid confusion later, it is crucial to ensure that your T&E policies explicitly specify the method of payment used for different travel requirements.
Here’s a look at several methods for compensating employees for their travel expenses:
- Per diem
An employee’s daily allowance is known as a per diem (or per day). The amount that employees may spend each day on food and lodging while travelling for work is outlined in the per diem policy. You can offer employees money in advance or refund them after they’ve returned from their trip.
- Corporate credit card
A corporate credit card is one that a company gives its employees to use for work-related expenses. It enables employees to cover costs without using cash or personal credit cards. Using a corporate card can help you handle travel expenses by incorporating clear spending limits for your employees. Additionally, you can seamlessly conduct travel and expenditure audits and reconcile all credit card transactions.
- Cash payments
Employees may have other expenses while travelling on business, such as buying stationery from a local shop that doesn’t accept credit cards or other forms of online payment. As a result, they must always have cash on hand. You can provide an estimated sum of cash (or a little bit more) for the entire trip and request that they provide receipts for every expense to keep track of the money spent. They can then give back the surplus money after they return from their trip.
- Post-trip reimbursement
Sometimes, predicting the whole expense of a business trip in advance can be a challenge for both employers and employees as they can’t accurately estimate miscellaneous expenses such as washing, repairs, and tolls. Therefore, you can reimburse travel expenses incurred by employees when they return to the office. Employees can either file all the expenses manually on a spreadsheet and submit the receipts to the finance department for verification and approval, or utilise business travel expense software to file expenses automatically and receive real-time approval from the finance team.
How to monitor and calculate business travel expenses
- Record and label each expense
Every expense incurred during a business trip must be recorded and labelled. Doing so will help the company save a lot of money since employee travel expenses are tax-deductible in many countries.
- Calculate the entire trip expenses
Calculating the whole cost of the trip is essential for making future budget predictions. Instead of dividing the cost of transport, meals, and lodging into separate spreadsheets right away, you must first examine the trip’s overall cost.
- Categorise the expenses
After calculating the entire cost of the trip, you should break down the expenses into other categories for clearer understanding. For instance, categorising the cost of flights under travel, hotel stays under accommodation, etc.
- Project the travel spends
Once you have recorded, labelled, and categorised your expenses, you can look at them to forecast how much your employees will likely spend on their upcoming business trip.
Optimise your business travel and expense management
Managing business travel expenses is one of the significant tasks to reduce costs for your organisation. Thus, your travel expenses list needs to be organised and updated frequently to ensure your expenses management process is always within the parameters of your pre-established budget.
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