A chef stands in a fully outfitted kitchen and looks down at a handwritten spreadsheet and a calculator. The chef is a man wearing a short white hat and white chef's uniform. He holds a pen in one hand and a piece of paper in the other.
Before writing your expense policy, make sure to get input from employees in various roles so you have a sense of what resources are needed for each part of your business. — Getty Images/Vladimir Vladimirov

A formal employee expense policy sets rules and terms for how team members should spend company money. This policy can help avoid confusion and budget mismanagement by detailing how your company deals with expenses related to your day-to-day work, as well as how employees can be reimbursed.

Successful employee expense policies cover three main topics: the expense categories that can be claimed against the company budget, steps for getting reimbursed, and the procedure that takes place if an expense is disputed. Here are some things to consider related to these categories that can help you make a user-friendly, transparent, and fair employee expense policy.

Get feedback from all your key functions

No matter if your business is 10 people or 100, it’s important to get input from different roles within the organization to learn more about their expenses. Sales, for instance, will have different costs than HR. What might be important for one role could look wasteful for another department.

Ideally, you’ll be able to define your expense policy in a way that’s equitable to every function’s needs. Likewise, your finance team can give you guidance on how much spending is too much. “Consider what [your employees] need to excel at their job, but also think about what they shouldn’t be able to buy,” wrote Spendesk.

Define your reimbursable expense categories

Start with a clear definition of what expenses you’re willing to reimburse as part of doing business. Establish clear, transparent rules for everyone to follow. For instance, every expense for which an employee is being reimbursed must have a direct business purpose. Employees must also provide proof of payment in the form of a receipt, invoice, or credit card statement.

Likewise, create spending categories that guide how you budget reimbursable expenses. “Clear expense categories simplify accounting, taxes, and financial reporting,” wrote Rho, a corporate card and expense management provider.

Common expense categories to include in your expense policy include:

  • Travel and travel-related expenses.
  • Meals and entertainment.
  • Transportation costs.
  • Accommodation.
  • Office expenses.
  • Communication.

Define each of these categories in depth as you write your policy to make sure employees know where to assign their reimbursement requests. It can also be helpful to include a list of expenses that aren’t eligible for reimbursement so there are no surprises in the future.

[Read more: A Small Business Guide to Employee Expense Reimbursement]

A well-defined policy should pose guidelines for handling exceptions.

Justin Wolz, Head of Communications at Rho

Establish steps for getting reimbursed

Outline the process, required documentation, and any deadlines (e.g., reports must be in before the month end) that employees need to know to get reimbursed. Detail the key parties who need to approve the request, as well as how long an employee can expect to wait to receive payment. If a request is rejected, describe how someone can appeal the process.

On the finance side, describe the filing process for keeping receipts and reimbursement requests for compliance purposes. Local laws will dictate this section of your policy.

“Review any state and federal laws governing expense reporting and reimbursement. Make sure your policy aligns with these laws. Take a similar approach with tax laws, knowing that there are strict policies concerning which expenses can or can’t be deducted on your business tax return,” wrote NetSuite.

[Read more: 4 Helpful Tools for Managing Business Travel Expenses]

Address how to handle expenses that aren’t covered

It’s nearly impossible to anticipate all the expenses that an employee will generate while working for your company. Include a section in your policy that covers any expenses that fall into a gray area or that aren’t addressed by the policy. “A well-defined policy should pose guidelines for handling exceptions. This could include expenditures like surprise medical expenses that aren't typically covered,” wrote Rho.

This section could be as simple as providing a point person to contact when a question comes up. This person could be your CFO, legal counsel, or you — the business owner. Whomever you choose, make sure they understand the philosophy behind your expense policy and can make a fair, transparent decision that aligns with your business values.

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.

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