What is an Expenses Policy?

Mary McMahon

An expenses policy is a company policy regarding expenses, determining which expenses are allowable and under what conditions. It is usually discussed in the employee handbook, and people can also obtain a separate copy from staff in human resources or accounting. If there are specific concerns about a particular expense, people are usually advised to ask directly and receive a preauthorization to avoid a situation where an expense is incurred and the employee does not receive compensation.

Businessman with a briefcase
Businessman with a briefcase

Many companies compensate employees for expenses incurred on behalf of the employer when on official company business. Something like buying a new suit for a client meeting is not covered, but the expense of taking a client out to lunch is, because the employee is conducting business on behalf of the company. Common examples of expenses include travel, room, board, conference fees, client entertainment, and supplies needed for presentations and other activities.

The expenses policy should outline situations where expensing is allowed, provide information about limits, and inform employees about how to claim expenses. For example, an employer might inform employees that lodging and food are covered while traveling for the company, with a per diem limit of $150 United States Dollars (USD) a day for these expenses. People who spend more than the per diem will only be compensated for the first $150 USD each day. At the end of the trip, the employee will be expected to submit receipts, usually with an expenses form outlining how and where the money was spent.

Some employers expect their staff to pay out of pocket and provide reimbursement after the fact. Others allow people to put reasonable expenses on an account. Company credit cards can be issued, or employees can do business with companies that have a formal relationship with their employers; a company might have an agreement with a hotel chain, for example, allowing employees to put rooms on the company's account. In all cases, expenses are subject to audit under the expenses policy and the company can decline to cover them if it feels they are not legitimate or reasonable.

In some companies, the expenses policy is very strict and people must get preapproval for all expenses. This is designed to eliminate confusion and to allow the company to track expenses before they are incurred. Others allow people to take on expenses for basic needs but request approvals for unusual or large expenses. In more lenient environments, preapproval is not required and people may be provided with considerable latitude under the expenses policy.

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