Group of coworkers sitting in a restaurant at dinner.
Outlining covered expenses and coming up with a detailed policy are key in handling employee expense reimbursements. — Getty Images/skynesher

When employees make qualified purchases on behalf of the company, they’re eligible for reimbursement. Here are five steps to handle employee expense reimbursement effectively.

[Read more: 5 Things to Know About Company-Owned Vehicles]

Come up with a reimbursement policy

According to the Fair Labor Standards Act (FLSA), employers are not legally required to reimburse their employees for business expenses unless it drops their pay below minimum wage. But it’s common practice, and most employees will expect to be compensated for the money they spend on behalf of the company.

So, the first step is to come up with a clear policy outlining how employees can submit and be reimbursed for work-related expenses. This policy should explain things like:

  • How long employees have to submit their expense reports.
  • How they should submit their expense reports.
  • When employees can expect to receive payment.

Decide what expenses you will and won’t cover

Next, you should decide what expenses you will and won’t cover. Employees who read your policy should immediately understand what is and isn’t a reimbursable expense.

Here are some examples of reimbursable expenses:

  • Training: If your employees are required to do ongoing training for work, you should reimburse them for these costs.
  • Transportation: If employees have to travel for work, you should cover their transportation costs. Transportation costs can include things like airfare, train tickets, or Uber rides.
  • Meals: You should also reimburse your employees for any money spent on meals for work-related travel or functions. You can put a limit on meal costs to keep them from getting too expensive.
  • Lodging: Employees should also be reimbursed for any hotel room or lodging expenses related to business travel.

But there may be some costs you aren’t willing to reimburse your employees for. For instance, you may not be willing to reimburse employees for things like child care, baggage insurance, or in-flight entertainment.

[Read more: 9 Employee Benefit Costs You Can Deduct from Your Taxes]

Once your employees submit their expense reports, you’ll want to verify these claims and ensure they comply with policy guidelines.

Make it easy for employees to track their expenses

Tracking employee spending can quickly become unmanageable if you don’t have a good system in place. The easiest way to manage this is by giving employees access to an expense app like Expensify or Zoho Expense.

These apps allow employees to take a photo of their receipt, and the app will automatically pull out the relevant information and catalog it in an expense report. Some apps will even connect to the GPS so employees can track their mileage. The app will then submit these reports electronically so your employees don’t have to file a claim manually.

And these apps make it easy to approve and pay employee employees quickly. The right app will make expense tracking easier for you and your employees.

[Read more: 8 Employee Expense Tools to Make Your Business More Efficient]

Verify expenses and reimburse employees

Once your employees submit their expense reports, you’ll want to verify these claims and ensure they comply with policy guidelines. Give yourself a reasonable amount of time to review the expense reports and get back to your employees with any questions.

But you should also ensure you reimburse your employees within a specific period. If your company takes months to compensate employees, this will likely lead to frustration and low morale. Employees should know by when they’ll be reimbursed and how — direct deposit is probably the easiest and most convenient solution for everyone.

Consider giving employees a business credit card

Finally, if you don’t want to deal with expense reports and reimbursing your employees, you can consider giving certain employees a business credit card. This will prevent employees from having to spend their own money on business-related purchases. However, all card transactions should be closely monitored and verified to ensure they meet company guidelines.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Follow us on Instagram for more expert tips & business owners’ stories.

Applications are open for the CO—100! Now is your chance to join an exclusive group of outstanding small businesses. Share your story with us — apply today.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

Apply for the CO—100!

The CO—100 is an exclusive list of the 100 best and brightest small and mid-sized businesses in America. Enter today to share your story and get recognized.