Expense Reimbursement 101: A Guide For Employers

When it comes to expense reimbursement, many businesses choose to have employees pay for goods or services with their personal funds. The business then pays them back after they submit an expense report, usually at the end of the month. This process enables the business to manage cash flow and maintain control over what employees can purchase.

While that system may work well for a while, it’s process-heavy and time-consuming for both employees and the finance team. Thankfully, there is an alternative.

In this article, we’ll discuss what business owners and managers need to know about expense reimbursement, and how to introduce alternative solutions that can help them save time and ensure great control over your business expenses.

Key Takeaways

1. Takeaway #1: Expense reimbursement is the process by which an employer pays back an employee for any and all business-related expenses that the employee pays for with personal cash, check, or credit card.
2. Takeaway #2: Expense reimbursement requires employees to document each purchase with a receipt, invoice, or other form of proof and then prepare and submit an expense report for approval or denial.
3. Takeaway #3: If your business operates an expense reimbursement program, it’s essential to create clear guidelines, policies, and criteria that define what and what isn’t an approved business-related expense.

What Is Expense Reimbursement?

Expense reimbursement is an arrangement in which an employer pays back an employee for business-related expenses that the employee paid for out of their own pocket.

Here’s how it typically works.

An employee pays for goods or services with their own money. Such expenses could be anything from travel costs to office supplies to client entertainment. It really doesn’t matter as long as those purchase categories have been pre-approved by the business.

The employee documents the purchase(s). Documenting the purchases usually involves retaining receipts, invoices, and/or any other proof of purchase that the business accepts.

The employee creates an expense report. These reports contain information about each purchase, including such things as what was purchased, the number bought, the purpose for the purchase, and the amount spent.

The employee submits the expense report and documentation to the proper person or department. Most often, the employee will submit the report to their manager, to the accounting department, or both.

Management reviews the expense report and either approves or denies reimbursement. Management reviews all purchases to make sure that they apply to the business’s expense guidelines, policies, and criteria.

The business reimburses the employee for approved purchases. Reimbursement typically occurs via direct deposit or an additional check come payday. Some businesses opt to roll the reimbursement into the paycheck, but that can cause tax issues for both the employer and the employee.

What Expenses Should Employers Reimburse?

Fuel

If an employee uses their personal car — or even a company car — for business-related travel and has to pay for fuel out of their own pocket, they should document the purchases and the business should reimburse them.

Tolls And Parking

If an employee has to pay tolls on the way to their destination or parking fees when they get there, the business should reimburse them for these expenses.

Lodging And Meals

When it comes to lodging and meals, most businesses will pre-approve certain hotels and set a dollar amount (typically per day) for any food necessary while traveling.

Maintenance And Repairs

If personal or company vehicles require maintenance and repairs while away from home base, the business can reimburse those expenses as long as the employee submits detailed invoices and documentation.

Communication

Depending on the policies that the business sets, any phone calls or data usage expended while on the job should be reimbursed by the employer.

Supplies And Tools

Purchases like office supplies, printer ink, software subscriptions, specialized tools, and even safety equipment should be reimbursed according to company policy.

Be sure to provide a clear list of approved items and spending limits so these purchases don’t spiral out of control.

What Expenses Should Employers Not Reimburse?

Each business can make its own guidelines as long as those guidelines don’t deviate from IRS rules. Examples of non-reimbursable expenses include:

• Personal expenses (e.g., entertainment and food beyond set limits)
• Traffic violations
• Alcohol
• Tobacco
• Anything that exceeds pre-set limits
• Travel upgrades
• Political or charitable contributions
• Late fees

Keep in mind that this is not an exhaustive list. Non-reimbursable expenses can be anything that isn’t directly linked to your business purposes and that falls outside your stated guidelines and policies.

How To Create An Expense Reimbursement Policy

1) Determine Eligibility Requirements

Not all employees will (or should) qualify for your business’s expense reimbursement program. That’s why it’s so important that you take the time to determine eligibility requirements.

For example, an employee who works on-site every day doesn’t need to be able to make business-related purchases at local vendors and would not be eligible for the expense reimbursement program.

On the other hand, a traveling salesperson or driver who represents your business does need to make business-related purchases while away from home base and would absolutely be eligible for the expense reimbursement program.

2) Define Reimbursable And Non-Reimbursable Expenses

One of the most important steps in creating an expense reimbursement program is defining reimbursable and non-reimbursable expenses.

What you include in each of these categories is entirely up to you. For example, some businesses choose to reimburse employees for the digital devices they use during work hours while other businesses do not.

During this step of the process, it’s also important to establish limits on approved purchases so that spending doesn’t get out of control.

3) Set Up Documentation Requirements

Proof of purchase is extremely important for controlling costs and preventing theft and fraud in the expense reimbursement program.

Clearly state what documents your business will accept as proof of purchase. Examples include receipts, invoices, and mileage logs. Some businesses only require a standard receipt (one that just shows the total paid), while other businesses require an itemized receipt.

Again, it’s entirely up to you, but accurate and specific documentation can make things easier down the road when it’s time to claim deductions on your taxes.

4) Build Submission Procedures

As we mentioned, the submission process typically includes six steps:

• Purchase
• Documentation
• Reporting
• Submission
• Review
• Reimbursement

You can customize the details within each step to align with the way your business works.

5) Implement An Approval Process

Some businesses have a manager approve or deny the expenses before they reach the accounting department. Other businesses skip managerial approval and give the responsibility to the accounting department itself.

Your business may choose to do something entirely different.

6) Specify Expense Reimbursement Methods And Timelines

Within your company policies, specify how (i.e., via what method) you will reimburse your employees for their business-related expenses. Payment methods include, but are not limited to, direct deposit, cash, and check.

It’s also good to establish timelines so that employees know when to expect their reimbursement. These timelines are entirely up to you and what works best for both your business and your employees.

7) Establish Communication Guidelines

In the beginning, your expense reimbursement policies will change (perhaps quite often). That’s why it’s important to establish a process for communicating changes to qualified employees.

Your business may choose email, text, direct message, paper memo, or something else entirely. Choose whatever works for your team and keeps everyone in the loop.

Build An Alternative To Expense Reimbursement With Coast

Traditional expense reimbursement processes put the burden on employees to pay out of pocket and on finance teams to track receipts, chase down missing details, and process payments after the fact. Coast offers a better way, by giving employees access to corporate cards with built-in controls that prevent issues before they happen.

With Coast, you don’t need to wait for someone to submit an expense: the purchase data, policy enforcement, and documentation are all captured up front.

• Corporate cards with embedded rules: Issue cards to field teams or office staff, while maintaining full control over how they’re used. Set spend limits, define approved categories (like fuel, supplies, or meals), and ensure each card follows your company’s policies.
• On-the-spot receipt capture and documentation: Employees upload receipts, memos, and job codes right from their phone at the time of purchase, with no need to store paper receipts or fill out expense report spreadsheets later.
• Automated reminders: Coast sends helpful nudges to employees when receipts or notes are missing, reducing the follow-up work for finance teams.
• Faster, cleaner reporting: With all the data logged in real time and synced to your accounting system, month-end becomes easier — and reimbursement becomes unnecessary.

By putting smart controls in place and eliminating out-of-pocket spending, Coast helps your team stay compliant and efficient, without the headaches of manual reimbursement workflows.

To learn more about how Coast can help your company, visit CoastPay.com today.