Employee expense reimbursement occurs when an employer reimburses employees who paid for business-related expenses with their own money. It is crucial to analyze the various sorts of employee reimbursement and how to manage them. Many businesses have policies in place that outline when they will pay employees for out-of-pocket expenses and what are the reimbursable expenses. The employer should notify employees of their reimbursement systems so as to be aware of rules and management. Let’s take a look at three of the most common categories.
Business expense reimbursement
Business expenses are the most common type of reimbursement. These are incurred while employees perform work for the company. These expenses are typically tied to:
- Business travel – includes the costs of lodging, meals, land water, and air transportation.
- Education or training – employers provide this kind of program to employees aimed to enhance technical abilities, knowledge, efficiency, and continuous improvement to perform any specific work much better. Employee training improves an employee’s skill set and aids in the development of the organization as a whole. Typically, these are paid on or before the training day or classes. In case your employee covered the expenses, the training facilitator or school definitely will provide an invoice or receipt.
- Business supplies or office materials – these are essential for employees’ daily work activities. It affects their productivity and this happens a lot of times for small business owners. Being passionate about their work they don’t mind using their own money as long as the employer reimburses it professionally.
- Business technology tools – these are part of business supplies however these are more expensive. It happens very rarely, however, you might want to give a free meal or a simple gift to your employee when you reimburse him.
- Other business-related expenses
Vehicle mileage and travel reimbursement
Vehicle mileage and travel expenses are other sorts of employee reimbursement. Technically, this is a sort of business expense reimbursement; even so, travel reimbursement has several unique features that distinguish it from the others.
- Standard mileage rates. Mileage rates are a method of paying employees for gas and vehicle wear and tear. When reimbursing employees for personal car travel, most companies use the regular IRS standard mileage rates for the year 2021.
- Per diem travel. When employees travel for work, the company can provide a set “Per Diem” allowance for lodging (taxes are excluded), food, drinks, and related travel expenses. This is called the limit reimbursement amount that the employers can use, collect and track receipts, or calculate expenses that will surpass the given amount and reimburse the employee the full amount regardless of whether they utilize it to save the hassle of tracking expenses. The GSA (General Services Administration) sets Per Diem rates at various locations throughout the United States.
Medical expense reimbursement
The third type of expense is medical expense reimbursement. Employers can also provide a health benefit to their employees by reimbursing their medical expenses. Invoices, receipts, and doctors’ prescriptions are just some of the required main documents for medical reimbursement. More details can be found by visiting the following links:
Allowable medical care expenses, Part I and Part II
How to claim your medical care expense deduction
Invoices will always be useful to any accounting duties and for tax purposes. Make sure all reimbursement has proper documentation aside from invoices and receipts. Managing invoices digitally using invoice maker will provide employers and the finance team better work results with timely records.