Writing a business expense policy might not feel like the most important thing on your to-do list. Maybe you trust your staff to make good decisions on how much to spend at lunch, or the idea of updating that mammoth company expense policy document, not touched since the early 2000s, gives you the shivers.
But here’s the thing – if done right, an expense policy can be one of the most important documents in any business. It’s what keeps spending under control and ensures everyone is on the same page about how money should be spent.
Meanwhile, an unclear expense policy can cause money leakage, organisational drag and all sorts of other unpleasantries. We’re here to help you avoid all of that.
In this article, we’ll cover what an expense policy is, why your business needs one – and how to build your own expense policy.
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Key takeaways:
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What is an expense policy?
Put simply, an expense policy is a set of rules and guidelines for employees on when they can claim company money back for costs incurred in the line of their work.
No matter the size of your business, at some point, your team will have to buy things for work.
Whether it’s for a meeting, a conference, a training event, an online tool or just something for the office, the people you employ will have to make a decision on what's OK to spend for the good of the company. That’s what the expense policy is for.
A typical expense policy might include things like the recommended hotel budget per night. It might also include details on what kind of gifts are OK, or if your team have to pay for any parking fines they pick up on business journeys.
Expense policies are usually laid out as physical or electronic documents that employers expect their employees to read when they first start. They don’t just outline suggested amounts, but also potentially preferred payment methods or providers.
The policy should also explain the procedure for employees to claim back money they’ve spent and what happens in the event of a dispute around business expenses.
What does an expense policy cover?
Usually, reimbursable business expenses fall into one of the following areas:
- Travel, like flights, train tickets, visas, vaccines, hotels and car rental
- Transport, like parking tickets, bus tickets and taxis (transport to your everyday place of work is usually excluded from this)
- Food and drink, like meals and drinks during a business trip, or client dinners
- Equipment solely for business purposes, like specific tools, PPE, a monitor or a desk chair
- Gifts, like flowers or gift baskets for team members or clients
A clause in an expense policy might look like this:
‘When you travel for work you can claim up to £10 for the cost of your lunch’ (AKA enough for an M&S drink and sandwich – but don’t go overboard on the snacks).
As for what an expense policy doesn’t cover, here are some examples of non-reimbursable business expenses:
- Personal entertainment expenses
- Partners or spouses accompanying someone on their business trip
- Traffic or parking fines
- Babysitting or pet sitting, even if incurred as a result of a business trip
Every business has its own approach to what is considered reimbursable based on its company culture and financial position – so in the end, it’s all up to you.
Why do you need an expense policy?
The thing about expenses is they add up quickly – especially if your company is adding more staff or you’re on a tight budget.
Here’s what an expense policy does for your business:
Control spending
One obvious point of expense policies is that they make clear the highest amount that people are permitted to spend on something.
This isn’t just useful for the big spenders on your team, but for everyone – a suggested amount can serve as a really useful benchmark for people when they’re trying to book something like a hotel or purchase a laptop.
Get everyone on the same page
If they’re not managed correctly, expenses can cause real friction and a sense of unfairness and dissatisfaction. A company-wide policy can be a great step in establishing the ground rules for everyone, from the Managing Director down.
And if it’s fair, there will be less temptation to break the rules. Of course, Pleo can help with that transparency thanks to our spending limits and insights, but that's for another day.
You might also be interested in: Why Pleo? How to convince your boss to give us a try
Plan for the future
When you know what people should be spending, it’s easier for finance teams and managers to forecast budgets. Reviewing what people are actually spending against the policy can also indicate areas where money can be saved.
If you’re telling everyone that £15 per breakfast is fine but nobody spends more than £5, you can look at updating your policy.
Reduce the risk of fraud
Business expense fraud might not be the most comfortable subject to talk about, but it matters. In fact, it costs British businesses around £158 billion each year.
An expense policy doesn’t just set out the ground rules of spending – it means your team can be held accountable if they go against those rules.
You might also be interested in: Avoid expenses fraud: Tips for making business spending safer
In other words, getting the phrasing and sentiment of your expense policy right matters. It protects you from losing money, and it empowers your people by showing you trust them.
Not bad for one little policy, eh?
5 steps to creating your business expense policy
At this point, you probably agree that it’s important to have your business expense policy written up for when you need it.
The easiest way to do this is to use Pleo’s expense policy builder which will make a personalised template for your specific company.
But if you’d prefer to write it yourself from scratch, keep reading for our 5-step formula to create the business expense policy that will get everyone on the same page.
Step 1: Do your research on national and local regulations
The good thing about expenses is you can usually use them to offset your business tax.
If you’re the one writing your company’s business expense policy make sure you understand HMRC tax rules so you know which kinds of expenses you can claim this relief on.
It’s up to your business whether they’re happy to swallow the costs of an expense that the HMRC won’t let you claim on your tax return, like entertaining clients.
This is a good time to speak to your CFO or get outside counsel so you fully understand the tax landscape you’re walking into. Misunderstandings at this point could cost you big in the long run so try and follow travel and expense policy best practices.
Be aware that if you have branches in other countries, taxes and expenses might work differently there and you might want to create a different policy for employees based there.
Step 2: Define what you’re happy for people to expense (and how much)
This will be unique to your company’s culture, finances and business model. Think about what will make your employees feel valued, and what specific challenges they face in your working field.
For example, if you run a small luxury travel business where a few employees are expected to do a lot of travel, you may want a generous travel expense policy for small businesses.
Increasing benefits here may increase employee retention and save money in other areas too.
Of course, you’ll also have to think practically about what the company can afford and how it relates to tax benefits. Getting input from the CFO, CEO and Head of People can be a great way of understanding the balance your company wants to strike.
As well as balancing employee well-being with the practicalities of running a business, your policy itself will need to strike a balance between specificity and usability.
Step 3: Create your procedures with your employees in mind
Now you’ve got your list of reimbursable and non-reimbursable expenses, start thinking about how your company will handle the following:
- How will you get staff to keep a record of payments?
- How will you reimburse staff?
- How long will it take to reimburse staff?
- How will you handle disputes?
- Are there any scenarios where you’ll pay for things up front so staff are never out of pocket?
These areas are really important to demonstrate that you respect and value your people.
Being £50 out of pocket for a month may not sound like a big deal to someone at a C-suite level. But remember: given the current global economic situation we find ourselves in, now is an important time to be prompt and respectful with payments.
Try and make your procedures as frictionless as possible for staff and your finance team. It will reduce the feared organisational drag, and show your employees you respect their time.
Step 3.1: Check if you can simplify your expense policy and procedures
So you have a rough first draft of your expense policy. We just want to double-check…
Is it 30 pages long and full of jargon and walls of text?
After working hard on this document for a long time, cutting it back may be the last thing you want to do. But trust us, this is not the hill you want to die on. You want people to actually read, understand and remember your expense policy.
Think about how you could rewrite sections using simpler language, break up the text into shorter paragraphs or cut back any unnecessary detail.
If you truly (madly, deeply) need that level of detail, then make sure you have a clear contents page so employees can find what they need quickly when referencing the policy.
Step 4: Consider incorporating technology
You’re probably already using some sort of accounting software and or online documentation for other areas of your work – and there are plenty of ways to use it for your expense policy, too.
You can bring technology into your business expense policy in as small a way as having a copy online that’s easily accessible – or you could go all in by switching over to an automated expense management system.
Business expense cards can save your team hours of time every week and are far easier to set up than a credit card for each employee. Often expense management systems make sticking to business expense policies an automatic part of an employee’s day, rather than a policy they have to read and remember.
Step 5: Keep reviewing and updating your policy
Your expense policy isn’t a static thing.
It should grow and change alongside your business, and the world around it. Make sure you set aside time to review your expense policy once a year once you’ve written it.
You could also create opportunities to get feedback from your employees and finance team, so you learn which parts of the policy are working for them, and any procedural elements that are slowing them down.
Tips: How to write a great expense policy
Our policy builder can help with a lot of these points, but it’s definitely worth taking a look before you dive in.
- Keep it concise: This is a document for everyone, not just your finance team or senior managers. It needs to be something people can quickly reference – so keep it concise.
- Get input from your team: You don’t need to do a company-wide survey, but it’s a good idea to get as much buy-in from people as possible. Run some of the key numbers past those in your company who can influence others (like team leads) – does £80 a night for hotel stays sound good to your senior managers?
- Don’t be too strict: No need to specify the punishments for anyone who goes against the policy. Lay out the guidelines in simple, plain language. In the rare case where someone acts outside of policy, you can decide the best course of action.
- Make sure the policy stays relevant: If spending habits change – e.g. because your company expands into a new market or you change suppliers – update the policy accordingly.
- Accessibility is key: Old-fashioned expense policies were printed out once and then gathered dust on a shelf somewhere. These days, you want to make sure the policy is saved somewhere online that can be bookmarked and referenced in a second – by anyone who needs it.
What you’ll find in the Pleo Expense Policy Builder
Feeling a little overwhelmed by everything the expense policy should include? That’s what Pleo’s Expense Policy Builder is for. Here’s what you’ll find in it:
Accommodation
Travelling for work is vital for many businesses – but how much are you happy for people to spend? Should they book with price comparison websites? Is there a hotel chain you prefer them to use? Or maybe Airbnb is the best option?
Food
Is breakfast, lunch and dinner covered by company money? If so, how much is allocated to each meal? Don’t forget the sometimes awkward questions of who pays (the most senior person is a common rule) and how much you can tip (... please do tip though).
Transport
We’re not just talking mileage, although that’s a vital part of an expense policy for many companies. The transport section of the policy builder also covers rules around flights, taxis and public transport.
Conferences and events
The first step for your conference spending policy is probably going to be deciding how much each person can spend on tickets per year or even per event. Of course prices for these tickets can change, so it can be a good idea to set a price range here.
Remote work
The data shows just how much business spending in recent times has focused on remote work set-ups. It’s not just the hardware that your WFH army needs – it’s ergonomic furniture, decent lighting and software to help them collaborate better.
Gifts and flowers
Keeping clients and team members sweet is always a good use of your money – but how much is the right amount to spend each year? And what about presents for your own team, when they hit a life milestone… or when you just want to show them you care?
Now that you know what it takes to build a great expense policy, you’re probably itching to create one.
Click the link above and in just a few minutes, you'll have set your team spending guidelines that will keep everyone on the right track.
