Running a small business means keeping a close eye on every dollar, including the ones you pay back to employees. Reimbursable expenses like travel, meals, fuel, and office supplies might seem small on their own, but when left unmanaged, they can snowball into a compliance headache, drain cash flow, and create friction between teams.
For small business owners, putting the right systems in place to track and manage reimbursable expenses isn’t just about avoiding messy paperwork. It’s also about protecting your bottom line, building employee trust, and staying audit-ready.
In this article, we discuss what reimbursable expenses are, why it’s so important to track them, and how to set up an expense reimbursement policy. We also introduce you to an alternative payment method that can help you eliminate reimbursable expenses altogether.
Key Takeaways
- Takeaway #1: Reimbursable expenses are business-related costs that employees pay for themselves while out in the field, traveling, or generally away from home base. As the name indicates, most businesses reimburse the specific dollar amount after the employee submits receipts and an expense report.
- Takeaway #2: Tracking reimbursable expenses is vital for your business’s bottom line. Doing so gives you more control over your finances, helps you reduce costs and prepare for taxes and audits, prevents overspending and fraud, and improves accuracy and transparency.
- Takeaway #3: Setting up a reimbursable expense policy is simple: Define what qualifies as a reimbursable expense, set spending limits, list necessary documentation, create an approval workflow, and leverage technology to streamline the process.
What Are Reimbursable Expenses?
Reimbursable expenses are costs incurred by an employee (i.e., paid for out-of-pocket by the employee themself) on behalf of their employer for business-related purposes, which the employer agrees to repay.
These costs can vary depending on business policy, context of the expense (i.e., business vs. personal), and IRS guidelines.
Examples of reimbursable expenses include:
- Travel costs, meals, and entertainment
- Office supplies and equipment
- Fuel, tolls, and repairs for a company car
- Phone and internet expenses
- Training, education, and membership fees
By contrast, non-reimbursable expenses include personal, non-business-related expenses such as personal grooming, coffee, subscriptions to non-essential industry publications, parking tickets, or personal phone calls.
Why Is It Important To Track Reimbursable Expenses?
Gain Financial Control
When you don’t have visibility into what’s being spent, it’s easy for costs to spiral beyond your budget. By implementing a clear process for managing these expenses, you can catch overspending early and keep your books accurate.
Tracking reimbursable expenses also improves your ability to forecast cash flow. Instead of being surprised by a backlog of delayed employee reimbursements, you’ll know exactly what liabilities are coming and when.
Detect Fraud
Even in the most trustworthy teams, expense fraud can happen. Whether it’s accidental double submissions, personal purchases slipped into business claims, or inflated mileage reports, these issues are hard to catch without a system in place.
Tracking reimbursable expenses closely creates a layer of accountability. When employees know that expenses are reviewed and matched against clear policies, they’re more likely to follow the rules. And if something suspicious does slip through, consistent tracking makes it much easier to spot patterns and investigate quickly.
Improve Accuracy And Transparency
Maintaining accurate records of all employee purchases, regardless of how small, can be used for everything from shareholder reports to profit/loss statements to data analysis for the business.
Each aspect of the recordkeeping and reporting process helps to make your accounting and money management more accessible and easier to understand.
Prepare For Taxes
Documenting and maintaining accurate records of all reimbursable expenses can help you prepare for the end of the fiscal year and make your tax filing much easier.
The key is to know all the rules and regulations that govern these unique expenses.
If you would like more details, talk to an accountant or other tax professional about what reimbursable expenses you can claim and what reimbursable expenses you can’t claim.
How To Set Up An Expense Reimbursement Policy
Creating an expense reimbursement policy for your business gives your employees guidelines so they know what types of expenses are reimbursable and the requirements they need to follow to be paid back.
1) Define Reimbursable Expenses
The first step in the process is to define the expenses that your business will and will not reimburse.
This often starts by creating broad expense categories, such as:
- Travel
- Meals
- Supplies
- Client-related
Then, within each broad category, list the types of expenses that you will reimburse and the types of expenses that you won’t reimburse.
Examples of reimbursable expenses might include airline tickets, taxi fares, per diem dining (for the employee only), certain office supplies, and client entertainment or gifts.
Keep in mind that the line between a reimbursable and a non-reimbursable expense can be blurry and depends a great deal on what you consider to be directly related to business activity.
Examples of what you might consider non-reimbursable expenses include things like rental car upgrades, excessive personal dining costs, personal entertainment gadgets, and personal gym memberships.
2) Set Spend Limits
Set maximum amounts for each type of reimbursable expense to ensure that employee spending remains within budget.
3) List Appropriate Documentation
The types of documentation your business needs to verify a reimbursable expense may vary, but common options include:
- Receipts
- Expense reports
- Travel itineraries
- Meeting agendas
- Contracts
Be sure to stipulate that one or all of these documents must be supplied in order for the expense to be reviewed and reimbursed.
4) Set Up An Approval Workflow
Create a workflow that includes everything employees, managers, accounting, and oversight must do to complete the reimbursement process. This includes deadlines for expense submission and payment.
5) Leverage Technology To Streamline The Process
Many businesses have discovered the benefits of leveraging technology to streamline the reimbursement process and everything that surrounds it.
This includes tools such as digital expense report submission, receipt scanning, automatic expenses categorization, and more.
Eliminate Reimbursable Expenses With Coast
While tracking reimbursable expenses is a major step forward, it still leaves businesses and their employees dealing with a burdensome process.
Employees often have to pay out of pocket, hang onto receipts, and fill out expense reports, while admins spend hours chasing down documentation and manually processing reimbursements. It’s better than nothing, but it’s still a headache.
Coast offers a smarter way forward. Instead of asking employees to front business expenses, you can issue secure Coast corporate cards with built-in controls that limit spending by merchant, category, or even time of day. Every transaction is tracked in real time, with receipts and memos collected on the spot, no paperwork or back-and-forth required.
Admins get full visibility into spending, can review expenses as they happen, and enjoy effortless reconciliation at the end of the month. With Coast, you don’t just improve expense tracking, you eliminate the need for expense reports altogether, freeing your team to focus on what really matters.
To learn more about how Coast can help your company, visit CoastPay.com today.
Frequently Asked Questions
Do I legally have to reimburse my employees for business expenses?
Laws vary by location, but some states and cities have made it mandatory for businesses to reimburse employees for any business-related expenses they may incur while on the job.
These states and cities are California, Illinois, Iowa, Massachusetts, Minnesota, Montana, New Hampshire, New York, North Dakota, Pennsylvania, South Dakota, The District of Columbia (Washington, D.C.), and Seattle, Washington.
Even if there’s no law on the books in your state, it’s generally accepted as good practice for employers to reimburse employees for any legitimate and necessary business expenses.
Consult with an attorney or certified public accountant for more details regarding reimbursable expenses.
Are reimbursable expenses tax deductible for my business?
Most reimbursable expenses are tax deductible when April 15 rolls around. Keep in mind that any expenses you claim on your taxes must have proper documentation and a legitimate business use.
Proper documentation includes things like original receipts (hard copy or digital), expense reports, and mileage logs. The expense must also be used primarily for company rather than personal activities.
Are there alternatives to managing reimbursable expenses?
One easy alternative to managing reimbursable expenses is implementing a corporate credit card.
A corporate credit card is a line of credit issued to a corporation rather than an individual. This means that the business itself — not the cardholder — is legally responsible for all charges.
This allows businesses to issue copies of the corporate card to employees so they can pay for authorized business-related expenses (e.g., plane tickets, fuel, and hotel rooms) without having to use a personal credit card, check, or cash.
Then, instead of having to reimburse the employee for what they spent, the business can simply pay the credit card bill every month.
