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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 an unclear business expense policy can cause money leakage, organisational drag and all sorts of other nasties.

What’s an expense policy again?

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.

A clause in an expense policy might look like:

‘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). 

Expense policies are usually laid out as physical or electric documents that employers expect their employees to read when they first start. 

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.

Why might I 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.

An expense policy will stop you from leaking money from employees claiming too much or for the wrong things. 

On a more serious note, an expense policy protects you from malicious intent if you do have a bad egg on the team who’s deliberately trying to claim unnecessary expenses. 

It can also prevent the loss of morale caused when an employee feels unclear on what sort of benefits they’re being offered. Someone could easily end up overspending, get told off and resent the company for it.

On the other hand, an overbearing expense policy can also cause a loss in morale by implying you don’t trust your people. 

Getting the phrasing and sentiment of your expense policy right matters as it protects you from losing money and empowers your people by showing you trust them.

Not bad for one little policy, eh?

Where can I use a company expense policy?

Usually, reimbursable business expenses fall into four key 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 that is used solely for business purposes, like specific tools, PPE, a monitor or a desk chair.

Examples of non-reimbursable business expenses include:

  • 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 will have a unique approach to what it considers reimbursable based on its company culture and financial position. 

5 steps to creating your business expense policy

So you agree, you need to get that business expense policy written up, shared around and kept thoroughly updated.

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.

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.

Bear in mind the danger of organisational drag 

In 2016, the Harvard Business Review published research on just how much time and money bureaucratic processes can affect productivity.

And, even five years ago, the results are jaw-dropping. On average a growing company loses more than 25% of its productivity to processes and procedures that are not actually making the business money.

We can only imagine how much organisational drag is affecting companies in today’s post-COVID working world.

So think carefully about how you balance the need for specificity with giving your employees the autonomy to be productive.  

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 now is an important time to be prompt and respectful with payments given the current global economic situation we find ourselves in. 

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: Could you simplify your business expense policy and procedure?

So you have a rough first draft of your expense policy. We just want to double-check… 

Is it 30 pages long, 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.

Keep reading to see how the Bank of England does this really well 👀

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. 

You can bring technology into your business expense policy in as small a way as having a copy online that’s easily accessible. 

Or a far larger way 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 policy’s an automatic part of an employee’s day, rather than a policy they have to read and remember. 

Step 5: Keep 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.

Business expense policy examples

If you’re still not sure what kind of expense policy you want to write, (or just want to read some to get inspired) here are a few to scratch that itch. 

The Bank of England’s detail-oriented expense policy

Well, it’s the kind of policy you’d expect from a bank.

The Bank of England focuses on ethics and their responsibility to the general public but also considers its employee’s well-being throughout this 17-page policy. It might be long, but it’s easy to read with a contents page that makes it simple for an employee to find what they need.

Netflix takes a minimalist approach to expenses

“Act in Netflix’s best interests”. That’s it. 

And it makes sense for a company as modern, innovative and creative as Netflix. They’ve said that the massive gains in time, productivity and creativity more than outweigh the occasional bad apple who might misuse the policy.

Not to mention if this does happen, they just have a chat with that employee to find out why. 

The BBC’s expense policy focuses on the public interest

The BBC is partly funded by the government and the UK taxpayer, so it makes sense that they take a classic, comprehensive approach that follows HMRC recommendations to the letter. 

Hat’s off to them for including a sustainable travel policy so employers are encouraged to use public transport as much as possible.

Automate your expense management with Pleo 

Thousands of companies across Europe trust our expense management tool to sort their spending. Teams of all shapes and sizes across multiple industries have helped us shape a corporate expense management system that works for everyone.

Learn more about using Pleo for automated expenses today.

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