Employee Reimbursement: Things A Business Owner Must Know


There are a few factors that a company’s management often overlooks, but this small mistake can become a massive burden in the future. Employee expense reimbursement is one of them.Sometimes, businesses need employees to invest their money to purchase job-related items. The management pays them reimbursement for that expenditure.Now, how does it impact the business expenses of the organization? Why is it that important? What are the significant factors you must know about employee expense reimbursement while running a business?

Let us explain!

First, what is employee expense reimbursement?

It is often seen in organizations that the management is paying their employees back for legitimate business expenses. The following examples will help you to understand it better:

  • Travel for business purposes
  • Entertainment and meals
  • using a personal vehicle for work
  • Tools and materials
  • Education costs and membership fees

As a business owner, consider developing an employee reimbursement policy that establishes guidelines for how and when a request to get reimbursed will be accepted, as opposed to reviewing and compensating employees as personal expenses are incurred. An employee expense reimbursement policy should specify which costs will be covered. It must include instructions on how to apply for reimbursement, either online or by mailing receipts.

Once the company develops a well-crafted reimbursement policy for its employees, they get substantial tax benefits. It is profitable for both employees and employers.

Which one is better: Accountable plans or non-accountable plans?

Companies frequently create formal policies addressing this issue to limit available reimbursement. Generally, the management gets two options for paying for employee expenses: an accountable plan or a non-accountable plan.

Here we will explain both plans to help you determine the perfect pick for your business.

  • Accountable plan:

The accountable plan calls on employees to provide evidence of their business-related expenses within a reasonable time. The submission should be made within 60 days from the day of spending. It also outlines how to reimburse the organization for extra payments within a certain period. It must happen within four months of the charge being incurred or paid. Although the IRS does not require accountability programs, having one allows your company to abide by its rules on deductible reimbursements.

  • Non-accountable plan:

If a reimbursement plan doesn’t meet the criteria for an accountable plan, then we call it a non-accountable one. Every non-accountable compensation agreement is considered extra pay that must be taxed. Non-accountable plans could have clauses that make them unsuitable:

  • When a worker can’t provide the expenditure evidence within the given time
  • If your employees don’t meet the deadline to return the extra reimbursement or allowance.

For instance, a company might allocate a specific amount to an employee for business-related travel costs. Assume that the employee is not obliged to provide expenditure receipts and that the reimbursement scheme pays 70 dollars daily for eating. If an employee can save some bucks from this 70 dollars daily, they are not obliged to give it back to their employer.


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