Last summer, we talked about some best practices for a tech company’s expense policy. If you read it, it probably got your wheels turning. As it turns out, solid — and IRS-compliant — expense management means a lot more than cutting a check for the amount of the receipt your employee hands you.
In last summer’s blog, we delved into how to build an expense report template, giving you a tool you can use with your team to track what they spend. But that sort of hinges on you already having an expense policy in place. So let’s take a step back.
If you haven’t yet built and distributed an expense policy for your team, you’re in the right place. Here’s a step-by-step guide to doing just that.
#1: Decide what’s expensable
First up, you get to make the decision about what counts as a business expense for your team.
Generally, these get broken into categories. To help you think through what you might want to make expensable at your startup, we’ll give you a fairly big list of possible expenses here:
Decide what isn’t
To avoid confusion, it can be helpful to also have a brief section in your expense policy that calls out anything you won’t allow as an expense. For example, you might specifically say in your expense policy that you won’t cover:
- Commutes to and from the office
- The cost of any traffic tickets/parking fines incurred while using a company vehicle or rental car during business travel
- The loss of personal property during business travel
- Meals over a certain dollar amount
- Alcoholic drinks over a certain number per day
- Gratuity over a certain percentage
- Expenses for travel companions (e.g., spouses, children) during business travel
- Flight and hotel upgrades
- Hotel services like mini bar purchases or in-room entertainment
- Child care
- Pet care
- Clothes
- Personal grooming
- Laundry or dry cleaning if the business trip is shorter than a certain length
- Personal gifts (e.g., souvenirs)
- Personal entertainment (e.g., entrance fees to a tourist attraction)
#2: Establish approval procedures
Once you decide what your company will and won’t cover, you need to think about how that will actually happen.
Is there an approval process? (There should be.) Does it happen before or after the expense is incurred? A lot of companies say approval can come after as long as the expense is under a certain dollar threshold.
When pre-approval is needed, how do employees get it? Who are the approvers?
When do employees need to submit expenses? What proof do they need to show (e.g., receipts, invoices)? Technically, the IRS only requires you to gather receipts for reimbursable expenses over $75. But to get employees in the habit of carefully tracking their expenses, you may want to require a receipt for every expense.
Ultimately, you should figure out:
- How and when expenses get approved
- Who issues that approval
- What expense proof is needed during the approval process
You don’t have to do this on your own here. Loop in your leadership and get their thoughts. They may have experience or insights that can inform your specific company’s expense authorization process.
#3: Create your reimbursement plan
For starters, this is legally required. If your employee is going to be spending their own money for the company, you absolutely need to have a process in place for paying them back.
So if you’ve got people on your team who won’t necessarily have a company card but who may incur expenses (and even if you don’t now, you likely will in the future), make a plan.
In most cases, this comes down to having an expense report template that they can fill out and submit along with their receipts. And, remember, we’ve got you covered there.
#4: Set timelines and employee responsibilities
If you polled 100 people asking if they liked submitting or approving expense reports, 99 of them would probably say no. Most people aren’t champing at the bit to handle these tasks. So you need to give them a little encouragement in the form of deadlines.
Most companies say that expense reports need to be submitted within 30 days of the expense or by the end of the month in which it was incurred.
You should also set a deadline for expense report approvers. If you say expense reports need to get submitted by the month’s end, for example, you might say that all managers need to approve reports by the 10th of the following month.
#5: Document your expense policy
Now that you’ve made all of the big decisions here, it’s time to write up the policy so you can share it with your team. Remember, brevity is the soul of wit. And while your expense policy probably won’t be witty, you also don’t want it to be a massive slog that none of your employees actually read. Keep things as concise as possible, both for clarity’s sake and to encourage your team to actually read through the whole policy.
Now, let’s write. Your expense policy should include:
- Your policy brief: This is the opening statement that hits the high notes.
- What can be expensed (and what can’t): This is the meat of your expense report. It will probably be two long bulleted lists, one for allowable expenses and one for expenses that aren’t allowed.
- Procedures: Once employees know what they can and can’t expense, they need to know what to do for the allowable ones. Lay out the process for:
- Employees who have a company card
- Employees who need to get reimbursed
Once you have your expense policy written up, run it past a finance expert like someone from our team. This can help to ensure you’re aligning with any federal, state, and local laws. And run it past your leadership again for any final changes.
When you get the green light, make sure every employee has access to the expense policy. Include it in your onboarding materials and your employee handbook. Send it to all existing employees in an email and put it somewhere they can always access it, like your intranet.
There’s a lot to do here, but you don’t have to handle it alone. For support from our team of experts, get in touch.