Understanding the Basics of Employee Expense Reports

Employee expense report is a method used by businesses to reimburse employees for work-related expenses. It is a simple, yet crucial step in an effective expense management system, that will help you keep track of employee spending and ensure staff is only spending on behalf of the company.

According to the Global Business Travel Association, it takes an average of 20 minutes to complete one expense report, costing the company $58 per transaction. But it doesn’t stop there. Added to that figure is the cost of correcting expense reports, which happens 19% of the time. So, what are the best ways to handle employee expense reports and ensure your general ledger is accurate? It starts with the right types of tools and accounting software.

In this guide, we will cover the basics of employee expense reports, including what they are, how to manage them, and how they can benefit your small business.

What Is an Employee Expense Report?

An employee expense report is a method used by business owners to reimburse their employees. It enables staff to request expense reimbursement for work-related expenses. An expense report includes a list of expenses incurred, as well as the date, amount, and purpose of each expense. The expense reporting process was created because, at times, employees must use their own money or personal vehicle for business-related tasks. Thus, it is only fair they receive money back and benefits like mileage reimbursement.

How it works is that employees submit their expense reports to their employer, mainly their finance team, who then review and approve the request for reimbursement. Once approved, the employer issues a check or direct deposit to reimburse the employee for the expense.

What Should Be Included in an Expense Report?

The first step is to make sure that you have a system in place for employees to submit their expense reports. This can be done electronically or through a paper form. In the past, these types of things were managed with an Excel spreadsheet, but with the introduction of expense reporting software, the entire process has been streamlined.

For business purposes, you will need to decide what information must be included in every expense report. At a minimum, most reports will have:

• The date of the expense
• Information about the employee submitting the expense report
• Type of expense
• A description of the expense
• The subtotal and total of the expenses
• The name and contact information of the vendor (if applicable)
• The client/project the expense was incurred for (if applicable)

Some businesses also require employees to include a receipt or other documentation with their expense reports. This can help the finance team verify the legitimacy of the expense and ensure that the company is getting what was paid for.

Employee Expense Report Template

Examples of Common Employee Expenses

There are many business expenses that employees may incur depending on the nature of their work. Some examples are:

• Travel expenses (e.g., airfare, hotel, ground transportation)
• Meals and entertainment expenses
• Office supplies and equipment
• Conference and seminar fees
• Subscriptions and membership dues
• Advertising and marketing expenses
• Legal and professional fees

It is important to note that not all of these expenses will be incurred by every employee or on every business trip. The types of expenses an individual incurs will depend on their job duties and the nature of their work.

What is the Purpose of an Employee Expense Report?

Creating expense reports is a huge part of the accounts payable process. It is a way for businesses to reimburse employees for work-related expenses incurred in real-time.

In every business, employee expense reports are important because they:

1. Help you keep track of employee spending

When you have an expense report, you can quickly and easily see where your employees are spending company money. This is important because:

• You can keep track of whether or not employees are spending company money wisely. If you see that an employee is consistently spending a large amount of money on unnecessary items, you can address the issue with them.
• You can keep track of how much money your employees are spending in total. This information can be helpful when it comes to budgeting for the upcoming year.
• When you track expenses, it helps to identify patterns of data, which facilitates spend analysis and reporting capabilities.

2. Ensures that employees are only spending company money on work-related expenses

One of the most important aspects of an expense report is that it ensures that employees are only spending company money on work-related expenses. This is important because you don’t want your employees to use company money to pay for personal items.

If an employee uses company money for personal expenses, they will need to reimburse the company for those expenses. This process can be time-consuming and frustrating for both the employee and the employer.

3. Reduces the risk of fraud and abuse

If you do not have an expense report system in place, employees could potentially abuse the company credit card or submit false receipts for reimbursement. An expense report helps to prevent this by requiring employees to submit documentation for all of their expenditures.

For example, if an employee tries to submit a false receipt for reimbursement, you would be able to catch it and deny the request. This helps to protect your business from fraud and abuse.

4. Saves time and money by streamlining the reimbursement process

Creating expense reports can save your small business both time and money. First, it saves you from having to keep track of employee spending manually. This can be a tedious and time-consuming task, especially if you have a large number of employees.

Second, expense reports can help you avoid mistakes when reimbursing employees. When you have all of the information in one place, it is less likely that you will make a mistake when writing out the reimbursement check. This can save your company money, as well as avoid any awkward conversations with employees.

5. Gives you a clear picture of where your company money is going

Another benefit of expense reports is that they give you a clear picture of where your company’s money is going. Knowing your actual expenses for the past month or quarter can be helpful when making strategic decisions about your budget. It also facilitates advanced spend analysis and insights.

Let’s say that you noticed your employees are spending a lot of money on office supplies. This information would be helpful when negotiating a better price with your office supplies vendor or when managing company expenses through spend control.

What Are the Steps in Creating an Expense Policy?

An expense policy is a set of guidelines that employees must follow when incurring business expenses. But first, what is an expense? It is defined as a cost that has been incurred by the company and its employees.

The company expense policy should include what types of expenses are covered or allowed, how to document expenses, and the reimbursement process. 

Here’s how to get started.

1. Define which types of expenses are covered or allowed

The first step in creating a company expense policy is to define which expenses are eligible for reimbursement. This will help you avoid reimbursing employees for personal expenses.

Some common examples of work-related expenses that may be eligible for reimbursement include travel, business meals, business entertainment, business gifts, and office supplies.

Make sure to be as specific as possible when defining which expenses are eligible for reimbursement. This will help to avoid any confusion later on.

2. Set a limit on the amount that can be spent per category

Once you have defined which expenses are eligible for reimbursement, the next step is to set a limit on the amount that can be spent per expense category. This will help to control employee spending and avoid any unnecessary or extravagant expenses.

For example, you may want to set a limit of $50 per day for travel expenses, $25 per meal for business meals, and $100 per month for office supplies. These limits can be set per transaction, per month, or year.

3. Require employees to submit documentation with their expense report

The next step in creating an expense policy is to require employees to submit documentation with their expense reports. This documentation can include receipts, invoices, or credit card statements.

Requiring employees to submit these will help you verify that the expenses were incurred and that they are work-related. It will also help to prevent fraud and abuse of the system.

4. Define the reimbursement process

Create a step-by-step reimbursement process to specify how and when employees will be reimbursed for their expenses. Will employees be reimbursed every month? Or will they be reimbursed immediately after they have incurred the expenses? Will you reimburse them through direct deposit or with a check? The functionality of this step is to be adamantly clear and concise about policy, so all expectations are met.

Defining the reimbursement process ahead of time will help to avoid any confusion or delays in getting employees reimbursed for their expenses.

5. Create an ethical statement

Including an ethical statement in your expense policy will help ensure that employees are behaving ethically when they are spending company money.

Some common ethical considerations that should be addressed in the statement include avoiding conflicts of interest, being honest and transparent about expenses, and refraining from using company funds for personal gain.

6. Use an efficient reporting system

The final step in creating an expense policy is to use a good reporting system for business spending. You can start with a paper system or a simple online expense report form. But if you want to streamline the process to save time and money, you may want to consider using expense management software.

An expense management system will help you automate repetitive and tedious tasks in monitoring and processing expenses, such as verifying allowable expenses and their limits or spotting and correcting errors. It will also allow your employees to submit their expenses and documentation online.

You may also want to consider your ERP integrations and how these new policies can be implemented in other programs.

Use and Submit Automated Expense Reports

Employee expense reports are just one of the fundamental parts of any business that has a direct impact on your bottom line. It is the most basic way of managing business spending and keeping track of employee expenses.

The traditional way of monitoring expenses through paper receipts and manual data entry is no longer practical in the digital age. With so many transactions happening online and via mobile app, it’s impossible to track everything without a system in place. That’s where expense management automation comes into play. Why do more than you have to? It can capture receipt data, automate approvals, and streamline workflows with the click of a button.

Interested in implementing a spend management system that simplifies and streamlines your business’s existing process? Get started by learning about Tipalti’s Expenses Automation.