Creating an effective expense policy is a balancing act. You need to walk the fine line between eliminating unnecessary costs and establishing a policy that is reasonable and workable for employees and managers alike. Create a policy that’s too lax and you’ll watch travel costs skyrocket. Create one that’s too stringent and you’ll end up with impractical restrictions, unhappy business travelers, and an increased risk of expense fraud.
Creating a policy that has just the right balance is easier when you take the following seven tips into consideration.
Beware of false economies
While it may be tempting to impose policies that demand things like purchasing the cheapest available airline ticket, such restrictions may not be in everybody’s best interest. True, a layover (or two) may reduce the overall cost of a ticket. But it increases the amount of time your team members spend traveling instead of doing what you sent them to do, which is selling, keeping clients happy or solving problems.
Is your employees’ time really that much less valuable than the savings on the ticket? Besides, budget airlines are known for adding on a flurry of costs, such as charging for carry-ons, that legacy carriers roll into their ticket price.
Related: Why Sensible Travel Expense Policies are Critical for Business Traveler Happiness
Allow for different costs of living
The cost of living, or a business trip, can vary greatly from city to city. Even the U.S. government realizes this, allowing for different per diems based on location. Major cities, such as New York and San Francisco, can have a daily expense rate that’s more than three times the standard rate.
Your expense policy should make the same considerations, accounting for the dramatic cost of living variations you find in cities across the world. The GSA’s per diem rates can give you a good idea of the variations across the country, while Numbeo’s global cost of living calculator does the same on an international scale.
Keep it specific
Ambiguities can be a huge pain for both employees and administrators, resulting in confusion, continual clarification requests and arguments over returned expense reports. Work with your business travelers and management team to identify what should and should not be allowed, then create a specific list that everybody understands.
Instead of simply stating that in-hotel laundry can be expensed, specify how frequently those expenses can incur. Weekly laundry expenses may be OK, while laundry expenses charged every other day are not. Instead of giving a general nod to ride share services like Uber, specify the vehicle type that can be expensed for the number of people sharing it and what they’re carrying. Uber XL may be fine for three people with bags traveling from an airport, but not OK for a ride from a hotel to a meeting for one person.
Don’t make it too restrictive
Policies that are unreasonable and overly restrictive can result in employees becoming resentful, which can lead to them retaliating against the restrictions by padding their expenses in other ways.
For example, forcing staff to take the cheapest possible flight, even if the timing is inconvenient or it involves a long layover may be financially beneficial for the company, but it can show a lack of respect for your travelers and their time.
Other examples of being too restrictive may be something like allowing $10 for lunch, which may not buy much more than a fast-food burger and fries in some cities. Lunch costs that range from $15 to $20 are more realistic.
Also, decide where you stand with regard to reimbursing alcohol. While you don’t want to encourage your employees to go out and get drunk or select the most expensive bottle of wine, allowing a glass or two of wine or beer with a meal is not unreasonable. Sensible expense policies keep employees productive and happy on the road.
Employees are much more likely to follow the policy if they know what it says. In addition to ensuring all new employees receive and acknowledge the policy as soon as they start, you also want to announce any changes made after your annual policy review. Policies should be reviewed at least once a year, to update mileage reimbursement at the very least, and everyone should receive a new copy with the updates.
Related: Best Practices for Engaging Business Travelers with Expense Management
Enforce it consistently
The policy needs to be enforced fairly and consistently across the board, regardless of the individual’s title, seniority or rank. Executives need to follow the same rules as the rank-and-file staff, especially since our expense fraud research shows SVPs are the group most likely to illicitly beef up their expenses.
Make it easy on yourself
Manually administering an expense policy can become a logistical nightmare, with hours spent cross-referencing expense report spreadsheets against per diem rates and other data points. Many advanced expense reporting solutions can have smart expense policy rules coded right into the system. These global expense report solutions automatically know which items are allowed, as well as their maximum threshold based on the location of the traveler.
A global expense management system that features such capabilities will automatically notify users if they try to submit an expense that’s too high, along with a request to submit an explanation. Not only does this feature help with policy enforcement, but it also reduces the likelihood of conflict with the approver.
One more way to make it easier on yourself is to start with a comprehensive expense policy template that lets you fill in the specifics as needed. Our downloadable expense policy template ensures you don’t have to reinvent the wheel while helping you balance the needs of your company with those of your employees.
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Our choice of Chrome River EXPENSE was made in part due to the very user-friendly interface, easy configurability, and the clear commitment to impactful customer service – all aspects in which Chrome River was the clear winner. While Chrome River is not as large as some of the other vendors we considered, we found that to be a benefit and our due diligence showed that it could support us as well as any large players in the space, along with a personalized level of customer care.
We are excited to be able to enforce much more stringent compliance to our expense guidelines and significantly enhance our expense reporting and analytics. By automating these processes, we will be able to free up AP time formerly spent on manual administrative tasks, and enhance the role by being much more strategic.