Employee Expense Management: How to Guide

By Linda RoperNovember 2, 2022
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Employee expense management is a critical component of any business. It can help companies save money by avoiding unnecessary purchases. It also enables businesses to monitor their employees’ spending and reduce the likelihood of fraud or theft by making sure that every pound spent is accounted for.

So, how do you manage employee expenses successfully? In this guide, we reveal everything you need to know about employee expense management to help your business get ahead.

Table of Contents

Chapter 1: What is Employee Expense Management?

Firstly, let’s take a closer look at exactly what employee expense management is, as well as why it’s so vital for your business.

Employee expense management is the process of tracking and approving employee expenses. This includes travel, entertainment, office supplies, meals, and more.

Employee expense management is a crucial part of any company’s financial management strategy, as it allows companies to keep track of how much money they’re spending and where it goes.

When managing employee expenses, it’s also important to be aware of the 5 different expense ‘personalities’, as well as how they can impact your expense process.

Woman with phone and calculator working on employee expenses

Chapter 2: What Expenses Can Employees Submit?

Generally, an expense needs to meet one of two criteria if it is to be considered legitimate. It either needs to be necessary for the operation of your trade or business or required as a condition of employment. For example, when a sales representative pays for travel to attend meetings with clients and prospects that are necessary for their work, this would constitute as a reimbursable expense. It’s also vital that employees have valid receipts to prove their expenses.

There are various categories of expenses that your company might reimburse. These include:

  • Corporate travel expenses, including airfares and baggage costs for interstate or overseas travel, accommodation, transport fees (i.e. train, bus, taxi, or ride-sharing), car hire costs and associated fees (i.e. tolls, fuel, parking), or food and beverages when staying overnight.

  • Entertainment expenses, such as meals or beverages with clients or at meetings, as well as other necessary work-related entertainment activities.

  • Remote working expenses, including home office furniture, computer software or equipment, stationery, insurance, or utilities.

  • Professional development expenses, including courses, workshops, training, or subscriptions that must be undertaken for an employee to fulfil their role.

  • Health related expenses, such as eye tests if the employee must work on a computer for their role. This category also includes glasses or contact lenses if they’re used strictly for the screen-based work which is part of the job.

Chapter 3: How do you Record Employee Expenses?

There are two main methods for recording and managing employee expenses: manually or automatically.

Traditionally, employee expenses were managed manually, primarily through adding data into a spreadsheet. Not only is this process time-consuming and prone to costly human errors, but it also leads to slower and less informed decision-making, as these spreadsheets can’t be automatically updated in real-time.

Automatic employee expense management, however, offers a modern solution for businesses. The automated process makes use of cloud-based software, accessible applications, and real-time data to streamline the entire expense procedure.

Employee expense management apps and web-based solutions allow employees to easily record their own expenses online, thanks to features such as receipt scanning and automated policies. These solutions also offer built-in reporting tools so managers can track how much money is being spent on each category and make adjustments if necessary.

Chapter 4: How do you Reimburse Employees for Their Expenses?

You can have your employees submit their reimbursement requests through your expense management app. This is the quickest and easiest way to speed up employee expense reimbursement, as the software allows employees to submit expense reports in real-time, thus preventing delays.

Once the request has been received and approved by a manager (or another user with approval rights), it will be sent to your company’s accounting department for processing so that payment can be made to reimburse employees for their out-of-pocket business expenses.

It's also possible to integrate an expense management system with your payroll software so that employees' purchases are automatically reimbursed into their pay checks at the end of each month.

Chapter 5: What is the Role of an Employee Expense Policy?

Folder with policies and folder with procedure written on the back

Expense policies are a set of rules that outline how employees can submit expenses, as well as what is and isn't reimbursable.

Employee expense policies help to ensure that the company's financial resources aren't misused or abused.

When creating an employee expense policy for your business, there are a number of best practices that should be followed. For example, employees should be made aware of the reimbursement policy before submitting any expenses. This will help them understand what is and isn't reimbursable, while giving them guidance on submitting claims correctly in order to increase compliance.

Expenses must also be submitted within a reasonable time frame after they were incurred. The sooner they're submitted, the better chance there is that they'll be paid in full before the end of the month rolls around.

Chapter 6: How Can a Cloud-Based Expense Management Solution Help?

There are numerous benefits to using a cloud-based expense management solution within your business. This software is:

  • Easy to use: A cloud-based solution is easy to understand and implement, which means that employees can start using it right away.

  • Cost effective: Cloud-based solutions offer a lower cost of ownership and higher ROI than on-premise software. Since there are no hardware or infrastructure costs involved, there’s no capital expenditure required for setting up an expense management system; you just pay for the service and month-to-month usage fees.

  • Secure: Your data is stored in secure servers, making it inaccessible from those who haven’t been granted access to it. This ensures that only authorised users can view the information, thus reducing the risk of theft or leakage of sensitive business data such as credit card numbers or transaction histories.

  • Scalable: With a cloud-based expense management solution, you don’t have to worry about upgrading hardware when your company grows. Instead, all you need to do is increase capacity by adding more users to your account.

ExpenseIn is a popular cloud-based expense management software that lets employees submit expense claims within minutes. It does so by replacing time-consuming spreadsheets with automated features such as receipt scanning and automated expense policy enforcement. Plus, with a fast and flexible approval process, expenses can be reimbursed on-the-go.