July 8, 2019

How Do You Pay Your Employee’s Expenses?

By Paul Bieber

Employee expenses are funds that employees spend and then submit for reimbursement. What can be complicated? Lots of things. Are the expenses legitimate for your business? Are there receipts attached? Are the receipts dated for work days and not a holiday or weekend? Keep reading for ways to improve your expense reimbursement program.

First you need to set which expenses you are able to reimburse. This can include meals, refreshments, alcohol up to a certain limit and extended-day food, such as when an employee stays late and you pay for dinner. You pay for travel, and travel time, plus other related transportation such as cabs or Uber and car expenses through a mileage program or reimbursements for regular automotive expenses. You can also pay professional dues or memberships.

You can also pay for many other things, such as secondary education or college expenses if the courses relate to your business. You can pay to have a salesperson’s car washed every two weeks and pay for holiday gifts to customers.

In short, anything that is legitimate for you to deduct on your taxes you can reimburse to an employee. Be careful here for there may be expenses that you choose not to pay for. Let’s say you send an employee on a trip, and she has to place her puppy in an overnight facility. This is not deductible on taxes. If you choose to reimburse this expense, which you can, it is taxable income to her, and must be reported so on her W-2. If you want to fully reimburse her, you have to multiply the expenses by 1.7 to cover her taxes. You can deduct this as a payroll expense, but not as an expense reimbursement.

Let’s look at some basic rules that companies should use.

Expenses must be submitted with seven days of the expense, unless the employee is traveling, in which case they must be submitted within seven days of returning to the office.

Original receipts must be attached on any expense over a given amount, usually $10. All expenses must be business related. If you take a customer to play golf that is reimbursable. But if your employee wants to play on the weekend before the customer event, that should not be reimbursed.

Expense receipts must be readable and be referenced to the client or customer involved.

An expense form must be filled out fully and legibly, showing date of expense, amount and totals.

Pay expenses no more frequently than once a week. Expenses turned in by Tuesday will be paid on Friday, for instance. Expenses turned in on Wednesday wait until the following week.

There is a lot more to this subject and next week we’ll discuss company credit cards, advance payments and special situations.