How to create the best expense policy for your organisation

If you’re a part of the finance team of a company whose employees often take clients out for meals, you’ve likely come across some invoices that do not align with the company’s expense policy. Whether the meal went over budget, or some items are not allowed to be expensed, encountering something that’s out of policy is enough of a hassle to derails the whole expense management process and delay reimbursements. Moreover, it can create real issues for the organisation in the long run. 

In the corporate world, where managing company money often goes hand in hand with managing people, having an effective expense policy is not simply a formality, but a strategic necessity. When used properly, a good expense policy goes beyond a simple list of dos and don’ts, and it becomes a vital instrument for shaping company culture and maintaining financial discipline, whilst securing the company’s fiscal health by reducing unauthorised, unnecessary, and extravagant spending. 

And it might sound like something easy, but creating an expense policy is much more than simply filling out a template. To achieve the best possible outcome, the organisations specific procedures and needs must be considered. Because whilst, for some, Uber expenses might not be acceptable or have a very low limit, for others it might have higher limits as it’s common for employees to take Uber rides on their day-to-day. 

But before we dive in on everything you need to know to create the best possible expense policy that fully aligns with your organisation’s needs, we first need to understand why the document is necessary in the first place. 

An Expense Policy is a set of rules defined by a company that specifies how employees are reimbursed for expenses they incur on its behalf. 

Simply put, it is a list of all the dos and don’ts for your employees when incurring expenses. 

However, there’s much more to it. 

From the employee perspective

For the employee, it’s a guide on how they can spend the company’s budget when travelling for work. By holding on to these guidelines, they can be sure to be reimbursed for the amount that’s allowed within their policy. 

They don’t have to negotiate the expenses because the standard has already been set in the policy. 

From the employer perspective

For the employer, there are a few more advantages. By having a good expense policy, it’s possible to avoid fraud, set boundaries, and make it easier to make estimations and future budget predictions. 

By including the right guidelines and workflows in the policy, employees will know exactly what’s expected from them when reporting their expenses. By setting these boundaries employers keep spending under control, avoid discussions and make it easier to trust employees. 

Also, having a good set of rules makes forecasting expenses a simple task for finance departments. Oftentimes, expenses account for the second largest cost for companies. This means that having better rules will not only provide more transparency and more insights into employees’ spending, but also enable you to start optimising this cost centre. 

At first glance, it might seem as if you need to have a long and detailed list of everything employees are allowed to expense or not. The truth is it should be the opposite. 

A good expense policy should be short, simple, well structured, and relevant. It shows how the employee can spend the company’s money, but in a thoughtful way. It’s also a way to ensure that employees read and understand the policy, as it’s short, simple, and not filled with finance jargon that they often cannot grasp. 

By having a simple, structured, and relevant expense policy, organisations ensure that compliance with said policy will be higher, as employees will have no trouble familiarising themselves with it. 

An organisations Expense Policy should be:

Simple

There’s no need to get lost in detail and include a lot of financial jargon. The expense policy should simply exclude exceptions and create a standardised set of rules. 

Structured 

Adding a good structure will make it easier to read. A great way to start is to make a good overview by organising the expense policy by category. 

Relevant

One key factor to keep in mind is always checking if the policy is up to date. It should fit the company’s size and culture, but also keep track of fiscal laws and regulations of the country (or countries) in which the organisation operates. 

Like with any other official document, a company’s expense policy must have a good foundation. For that, one of the first things to do is explain the purpose of the document, whilst going into the reasoning behind it and emphasising how it can help align employee spending with the company’s financial goals and ethical standards. 

This initial explanation will ensure trust between employee and employer, which can, in the long run, foster a more transparent relationship between the different parties, as they now know what’s expected of them. 

The policy should also clearly state how it will help simplify expense reporting, ensure equitable reimbursement, and reduce financial risks, which can improve policy adherence and contribute to a more cohesive financial culture. 

Set Your Expense Policy’s Rules

Next, it’s time to explain the workflow of filing expenses, the approval process, and some general rules, such as the fact that expenses can only be made in a business context and can’t occur during the weekend. 

It’s important to keep in mind that, while most countries no longer require organisations to keep physical proof of expenses such as receipts or invoices, they might be necessary for fiscal reasons in some locations and depending on the amount spent. 

Setting a deadline on how long employees can file an expense is also important, as receipts have a specific timeline to be used for tax reclaim. 

The core of the Expense policy will be the overview of the different categories of cost centres and each category will require specific rules. The most common categories are transportation, lodging, meals, and office expenses. 

To help ensure your organisation has the best expense policy, we’ve provided three examples of rules for the most common expense categories: transportation, lodging, meals, and office expenses. 

Transportation

If the mileage expenses are below €250/month, only 1 level of approval is required
An Uber expense can be €30/fare, maximum
You can only expense a parking ticket if you have the actual receipt. 

Lodging

• Items from the minibar will not be reimbursed
• Max amount is based on function and location
• Laundry expenses are only reimbursed if the stay is longer than 5 days. 

Meals

• All attendees should be mentioned when submitting the receipt
• Lunch limits are based per country e.g. €25 as the maximum amount in Belgium, €20 in Portugal
• The maximum amount that can be reimbursed for dinner is €20, the excess amount will not be reimbursed. 

Office expenses

• Expenses below €10 are auto approved
• Office expenses can’t exceed €30/month
• Mobile subscriptions can’t exceed €40/month 

Expense policies are one of the most important documents to have in an organisation, and even though they shouldn’t be complex, they’re often complicated to build. 

One of the best ways to ensure you have a great expense policy is to use an expense management platform. These software’s, such as the one Rydoo provides, are built to help companies automate their expense processes, not only to improve the submission but also to automatically enforce expense policies. 

With Rydoo’s automated expense approvals, organisations can set specific expense rules according to company policy, to improve policy adherence and reduce manual processing. Managers and Finance teams can configure spending controls, create warnings and approval flows that will make the expense process easier for everyone involved. 

Imagine a situation where an employee would submit an expense outside of the working week. If a rule had been created that wouldn’t allow for expenses during the weekend, the submission would be automatically rejected. The employee would get a notification on why the expense hadn’t been accepted and the manager would also be notified of the attempt, also making the process transparent for everyone involved. 

For Finance teams, it can allow them to analyse company spending to uncover patterns, and potential loopholes, enabling them to quickly adapt the company’s policy settings to mitigate future risks. 

The way expense policies are shared is as important as its content. It’s not worth spending hours on end creating a document so that it sits around, and no one takes a clear look at it. On the other hand, not all employees will have the bandwidth to read and memorise 8 or even 10 page-long documents filled with text. 

Creating a document that’s easy to read and interpret is a key step in sharing the expense policy with the employees. Working with a designer to create a clear and straightforward document that’s also interesting to look at will not only impress employees but also persuade them to read it. It’s also important to keep it accessible to everyone within the organisation so no miscommunications occur. 

On the other hand, it’s also important for finance teams and managers to provide some regular feedback to employees if they violate the corporate policy. Keeping open channels of communication for this will ensure that the mishaps are the exception, not the rule, which can prevent bigger issues in the long run such as fraud. Using expense management platforms can help with this, as the rules can be automatically set, making it easier for all employees to avoid mistakes. 

The key to the best Expense Policy lies in making it clear, engaging, and easily accessible. A well-designed document that’s easy to read will grab employees’ attention and encourage them to understand and follow it. 

It’s also important to keep this policy within easy reach for everyone in the company to prevent confusion. Getting and sharing regular feedback and using an expense management tool can also help guarantee that employees are not only aware of the expense policy, but they’re also keeping track of their spend, so it aligns with what the policy states.  

Remember, a simple, well-communicated Expense Policy is more likely to be followed, making your workplace more efficient and financially responsible.