How to write an employee expenses policy that works
We are often told as individuals that we need to live within our means. Financial prudence is a key aspect of a responsible existence. The same is true of businesses - even more so given the multiple livelihoods at stake. And cash-flow issues are regularly shown to be what make or break a business.
A large part of keeping on top of your cash-flow is to have a firm handle on your employee expenses. Depending on the size of your businesses, these expenses could be anything from an employee occasionally having to nip out to restock something in the store to regular accommodation and travel costs.
Whatever the level of expense spending in your business, you’ll want to make sure that your employees have the capacity to do their jobs properly, but also that they are only claiming reasonable expenses that represent good value for the business. A key part of this is having a clearly defined employee expenses policy.
What should an employee expenses policy include and how do you go about writing and implementing one? We’ve pulled together some top tips to make expenses easier for your small business.
Consider the resources employees need to do the job well
Just the second question of Gallup’s famous twelve question survey on employee engagement asks whether employees if they agree with the statement: I have the materials and equipment I need to do my work right.
Would your employees agree with this? Among those “materials” they may require is the financial backing to undertake their roles. No one enjoys forking out their own money in order to carry out their jobs. Doing so will harm morale, motivation, and engagement. Instead, implementing a reasonable expense policy will show employees that you trust them and are invested in their success.
Such a message can easily pay for itself in an improved workplace environment or greater employee efficiency. It’s been shown that engaged employees deliver far more than disengaged employees, with 22% higher productivity, up to 65% lower turnover, and 41% fewer quality defect incidents among other benefits.
Reasonable expenses will depend largely on the nature of the job, but it’s fair to expect that all employees will need suitable equipment, while some roles might require transportation, software, or even money to entertain clients.
There is a definite balancing act between what your business can afford and the benefits of properly supporting your employees, so it’s OK to start with the essentials, measure their effect, and then consider what else might be added.
Clearly outline what your policy includes—and what it doesn’t
Having considered what tools your employees might need, it’s time to clearly define a policy that makes it obvious what they can claim expenses for. You should have a pretty good list already, but now is the time to consider the extremes of such a policy. It’s important that the boundaries you set leave no room for justifying risky or unacceptable behaviour. Paying travel costs for a car journey to a customer office may be totally acceptable, but speeding fines incurred on that journey won’t be.
Even though this may seem obvious, it’s better to be safe and explicitly state what isn’t covered than to have to argue your case should the worst happen. While it may be reasonable to assume that an employee speeding is their own fault, it’s a much better resolution to the conflict to point out the appropriate restriction in a defined policy than to argue, “Well of course that isn’t included.” The latter will have a tendency to sound patronising however kindly it is put!
Another aspect worth considering is whether it may be easier for the company to pay larger expenses directly instead of asking employees to pay them themselves and then be reimbursed. This will help you keep a handle on costs more easily and avoid the unpleasant surprises of large reimbursement claims you’d forgotten about.
Set up the system framework
Once you’ve outlined the dos and don’ts, it’s time to work out the nitty gritty of how to implement your system. A certain level of control, oversight, and approval will obviously be needed. False expense claims contributed to the £40m annual cost of fraud to UK businesses in 2016. Equally, a time-consuming solution is just going to waste your employees’ time, driving down their productivity. And no one wants to be in charge of collecting, transcribing, and archiving paper receipts.
Many small businesses, in true “do it yourself” fashion, have employed spreadsheets maintained offline. There are risks to this approach, from access to corruption to compatibility. Custom solutions may be a better way, with dedicated tools available for tracking small business expenses. The cost of the tools can be weighed against the time they’ll save both management and the employees making the claims, and most often they prove to be good value.
Part of your system should also include deadlines for expense submission. You may give them a ser period from the time of incurring the expense, or merely require everything for a given year in by a set date. Either way, set a clear policy, make it known, and stick to it. Shorter periods—no longer than 60 days—tend to work best as they encourage employees to submit claims while they can still remember what the expense was for!
Once your system is up and running, don’t be afraid to review its performance and adjust things as necessary, just be sure to communicate any changes clearly. Best of luck implementing a system in your own business.