How to create an expense policy tailored for your business [with templates]

As your company grows, so does the number of expenses. Staying on top of spending will get harder, this is why it’s important to put in place tools and policies that make sense.

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 most likely have to make a decision on what is “ok” to spend for the good of the company.

As a company grows, this becomes harder to handle. Unless you want to drive a culture of complete trust and transparency at scale like Netflix, having a watertight expense policy isn’t just a ‘nice-to-have’, it becomes essential.

Expense policy is a set of processes and rules, most often in a form of a document, that defines how your employees can spend company money.

Inconsistencies and gaps in your expense policy can cause awkwardness, employee dissatisfaction, unproductivity and – in many instances – leaves you wide open to expense fraud (especially if you haven’t put the right tools in place).

The financial implications of each of those this on your company can be astronomical.

This is where a well-crafted expense policy comes in. One with clarity, that will make your compliance rates and employee happiness go up, saving your company money, time and confusion.

But how do you create an expense policy that’s just right for your business? In this article we bare all…

Markers of a great expense policy

So, what does a great expense policy look like? For starters, it should be short as possible, clear and to-the-point.

It should empower your employees to make decisions for themselves when doing something on behalf of the company, by spelling out what’s allowed (dinner and a glass of wine). And what’s not (dinner, a glass of wine, and three cocktails).

Ingredients of a Successful Expense Policy

Though there is no one-size-fits all when it comes to expense policies, there are components that are important, no matter your company’s shape or size.

Let’s take a look at what they are:

1. Rules Designed for Everyone

There’s likely to be fewer morale problems if your employees see your expense policy as a fair one. If it’s fair, there won’t be as many temptations to break the rules.

Though establishing a consistent expense policy sounds like it should be easy, practically, it’s very difficult to implement. It’s only natural that exceptions and preferential treatment creeps in – particularly as companies scale.

But a lack of transparency – no matter how small – creates confusion for your team. And this confusion makes bending the rules much more likely.

After all, if your teammate had that expensive flight allowed, why shouldn’t you?

By using an expense automation solution like Pleo, you can easily empower your staff with clear and consistent rules by defining flexible spending limits about what is, and isn’t, covered by company expenses.

What’s more, as a manager or finance team, you’ll have a real-time overview of what’s being spent by whom, when, and how, so that you can action any inconsistencies when they happen (rather than 2 months later when analogue receipts are filed) and review the expense if needed within Pleo.

2. Employee Buy-In

Your employees are more likely to stick to an expense policy if they had a hand in creating it.

Ask for employee input when you write the first draft. When you include them, they will no longer view it as something imposed by some random executive in a lofty office, but rather something they have ownership over.

Hold company-wide meetings to gather ideas from your employees. I bet they come up with lots of things you simply wouldn’t have considered.

Once you’ve written the final daft, allow them to see it one more time for any final suggestions. When you collaborate with employees, they naturally become cooperative to the rules.

3. Make it User-Centric

Do you know what the number one reason is workers violate expense policy rules?

Often, it’s not being able to understand them.

So don’t write your policy in arcane, hard-to-grasp language. It doesn’t matter how fair the policy is if nobody will read it. Your intent should be to show the employee that the company cares how its employees spend its money.

Getting rid of all jargon and corporate-speak and getting right to the point will help you do this. Be as specific as possible to cut down on confusion. You could word it like this:

“Evening meals must not exceed £X.”

The more specific it is, the better.

The goal is to make it easy for your employees to get answers to specific questions when they need them the most. And when making rules, don’t go overboard. Too many rules will overwhelm your employees and undermine your efforts.

4. Don’t Be Too Strict

Don’t make your policy too stringent. If you do, employees will start to resent it. Also, they might give in to temptations to bend the rules.

Remember, your goal isn’t only to keep costs down. It’s also to ensure that your employees engage with their work in a productive way. Straight-jacketing them with too many rules interferes with their ability to do this.

Don’t be too strict about where your employees can and cannot stay. This will only drive resentment and feelings of not being valued. Another no-no is forcing your employees to take an inconveniently-timed flights. If you had to take the cheapest early morning flight, but it meant you didn’t get much sleep the night before a big meeting, would you then be able to do your best work? Probably not. And the same goes for each and every one of your staff.

Covering only the cheapest expense options may seem cost-effective. And for the short-term, it is. But long-term, it can be detrimental if it deteriorates your employee relationships.

5. Make it Accessible

An expense policy won’t be effective if it isn’t accessible. Your employees need to be able to read it at the moment when they actually need answers.

So, make sure your road warriors can read it when they’re drumming up business for you far from the home office. You could, for example, put the expense policy on the web in the form of a company “wiki”, or create a visual one-pager than staff can have on their phones.

Make your expense management system simple, too. Use an automated expense solution that records expenditures on the go and if possible in real-time like Pleo. Over the course of an entire year, automation will save your business tens of thousands of pounds in saved time, both for those on the road and their managers administering expenses.

Perhaps even more importantly, though, automating your expense process will free up crucial time for your staff to do more of the tasks that have high impact, and less of the ones that don’t (i.e. filing paper receipts).

We wrote about the benefits of switching from manual expense reporting in one of our previous blog posts.

6. Education, education, education

Make policy education an integral part of every employee’s onboarding. During this process, test the employee’s understanding of policy specifics to ensure that they’ve understood the information in the correct way.

And emphasize the purpose and benefits of your policy every chance you get.

Once a year, hand out the latest iteration of your policy to every single employee. This is so they know what the changes are (and there will be changes from last year if you’re updating on a regular basis.)

After they read the latest version, have them sign off on it. This is not to hold a gun to their heads to bind them into a punishing company policy, but rather to make them feel ownership of a policy that’s there to help them do their best work.

7. Empowered Managers

Once you have crafted your expense policy, it’s important to enforce it in a consistent manner.

Empower your managers to keep track of company expenses by working with an automated expense system like Pleo.

Create custom predefined limits in just a few clicks, send real-time notifications to remind employees to take an image of the receipt on-the-go, and see all company spending in one place as it happens.

The fewer rules your staff and managers have to think about, the better.

Onboard a expense management software into your expense process to do all the thinking and administration for your staff instead. Simple.

8. Clear providers

If you have a high volume of company expenses, you might want to partner with third parties to negotiate cheaper rates. Figure out which corporate rewards programmes are best for your company by shopping around for the hotels, airlines, and travel agencies that have the best deals. Picking one airline as your preferred one also is important.

You’ll be able to negotiate killer rates if you have lots of people on the road. But there are other things you should also think about. Do you want to allow your workers to sleep in a first-class hotel? Must your sales staff always book flights in economy class? Whatever decisions you make, you need to include them in your expense policy.

There’re also other transportation problems to ponder.

Should you limit your sales staff to public transportation only, or is “Ubering” it okay?

Remember there are wide variations in prices in different geographies. That’s why you need to keep your rules flexible enough to accommodate local actualities.

Much of this spending occurs far away from the home office. This makes it difficult to figure out how “ordinary and necessary” this spending is.

So, empower your employees to make good decisions while on the road.

Establish Spending Categories

To craft the specifics of your expense policy, you’ll need to establish spending categories. These are things like travel, food, equipment etc.

List every spending category you can think of. Then, create monetary limits for each. To avoid confusion, set specific amounts for everyday expenditures. For example, you might decide to allow £40 per day for meal expenses. Or, you could set a limit per each meal.

Unfortunately, when it comes to company expenses, there is no “one-size fits all” approach. Rather, it’s important to spend time creating processes and procedures that are well suited for your individual context.

If your expenses are likely to be a-typical and resistant to categorisation, you may decide to set aside a certain monetary amount per day for expense allowances instead.

The ‘per day’ method can help set up expectations before a business trip. Then, it’s crystal-clear in the employee’s mind exactly how much money they have to play around with.

Finally, establish protocols for how you want your team to submit expense reports and receipts. For example, should they use an automated expense solution? Or, a specific form that they send to the accounts team? If it’s the former, make sure they know exactly which app to download and how to get access to their spending card.

Documentation Requirements

If you’re not using an automated expense solution, be clear about how many days from the initial expenditure an employee can submit a receipt. Will it be 30, 45, or 60 days? Only you, as the author of your company’s policy, can make those decisions.

Your policy needs to list expenditures that are reimbursable. Specifying which documents the employee submits for reimbursement is important to make sure your team get their money back on time. These documents (such as a receipt, for example) need to have all the requisite details, too. Things like the date the transaction occurred, the amount, and the name of the store. Make sure your team knows this up front so they don’t encounter any frustrating delays.

Having complete expense records establishes a paper trail. It also demonstrates to HMRC that the expenses incurred are legitimate ones. And not ones that are personal or non-business related.

The Process of Employee Reimbursement

If you’re not using an automated expense solution with company spending cards, then you’ll need to make sure your employees always get reimbursed on time. There should be very specific language in the policy on how they get their money back.

One way to avoid having to reimburse people is to issue company spending cards. With a solution like Pleo, you can easily generate virtual or plastic cards for all employees, each with their own individual limits. Using this method, you can load your company wallet and cards whilst your employees are on the road so that they never have to be out of pocket themselves.

If you’re staff are travelling by car for work, then you should make Mileage Allowance Payments (MAPs) to employees using their own vehicles for business. You can issue a certain number of MAPs per year without having to report them to HMRC.

HMRC calls this the “approved amount.” To arrive at this number, multiply the business travel miles for the year by the rate per mile for their vehicle. Next, use this table.

Update Your Policy on a Regular Basis

Once you have an established expense policy, it’s important to keep it fresh.

Policies are like living, breathing organisms. They’re forever evolving to adapt to your company as it evolves.

Did you write your policy before the advent of Uber or Airbnb? If so, you’ll need to figure out how you’re going to factor this in.

Failing to change your policy when new things happen can be disastrous. When you don’t account for changing circumstances, unnecessary spending is the result. An outdated policy also invites employees to ignore it.

Your employees aren’t going to be serious about your policy if they see a bunch of rules that no longer apply.

So, don’t shove your policy in a drawer somewhere and forget about it. Assign somebody within the company the task of reviewing the policy on a regular basis. This will ensure that it gets updated regularly and stays relevant.

Integrate with An Expense Management System

The simplest way to make your expense system an empowering solution for your team is to integrate spending with an expense management system.

Then, no longer is your expense report a dry, lifeless document. Instead, it becomes a vehicle to make and adapt to changes to your organization in real time. Tying every expense to a particular client can give you granular data on your ROI that’s super relevant. What’s more, you can see what’s working and what’s not.

Manual administration of your expense policy costs companies thousands in wasted time.

Instead, automate it through seamless integration with an expense management system.

This will make your life so much easier, and has the potential to save you thousands of hours and pounds in lost productivity.

So, there you have it…lots of wonderful pointers on crafting an expense policy.

One that is fair. One that is good for the company. One that gives you actionable insights on how to better run your business.

Template examples

If you are not sure where to start after reading this, we collected a few templates from around the web to help you get going:

➡️ Sample employee expense policy by Workable

➡️ Employee expense policy template by Fitsmallbusiness.com

➡️ Employee expense policy builder by SAP Concur