This article is part of a larger series on How to Do Payroll.
An expense report template makes it easy for employees to record the details of business-related expenses to be reimbursed and for employers to keep track of those expenses for payroll purposes. Monitoring your staff’s expenses can help with running payroll by providing necessary documentation for tax purposes.
To help you track your employees’ work-related spending effectively, we’ve created a free expense report template. We recommend you also have an official employee expense policy, or written guideline that employees should follow when submitting expenses for work-related purchases. This can help reduce confusion and ensure employees are held accountable for their spending.
Download our expense report and policy templates and customize them as needed.
If you want a way to control employee spending and track expenses easily, check out Bento for Business. Its prepaid credit cards allow you to manage employee spends and generate reports for each staff’s card in seconds. You can even send those reports right to your accounting software, simplifying the whole bookkeeping process.
Types of Reimbursable Expenses
Reimbursable expenses listed on your report and in your policy should include those that are approved and nonapproved, as well as those requiring pre-approval. While our expense policy template is fairly basic, you might want to specify which expenses are considered approved if your employees travel or entertain clients frequently. You could also establish a daily limit (per diem) on employee spending—usually ranging from $50–$200 per day, depending on your state and permitted expenses.
Some companies provide ranges of what’s acceptable for expenses, such as meals while traveling or mileage reimbursements. Most businesses limit the kinds of approved expenses to what the IRS will allow, which can include:
- Meals while traveling or business-related meals (e.g., a sales lunch)
- Car rental
- Hotel expenditures
- Parking and tolls
- Mileage (62.5 cents per mile)
Other nontraditional approved expenses may include:
- Remote office supplies (e.g., computer and printer)
- Employee perks (e.g., T-shirts and coffee mugs)
- Food (e.g., pizza for a company event and donuts for a meeting)
Some companies choose to convey examples of expenses that are not approved. This most commonly includes alcohol, but can also include things like service class. For example, you may want to reimburse traveling staff for coach or business-class airfare, but not first-class.
Many companies feel that if an employee wants a glass of wine with dinner, that should be a personal expense; others simply set a daily or per-meal limit without placing restrictions on the type of expense.
Some businesses require all or most expenses be pre-approved, and companies should provide employees with guidelines on these. For example, your sales team may not need your go-signal to buy gas for a sales trip in the company vehicle, but you may want them to obtain your approval before they book an out-of-town flight for a client meeting.
Think about different circumstances or situations and then document the kinds of expenses and/or the dollar amount that you will require your employees to get approval on before spending money and submitting the expense. You can even build notes into your expense report to remind employees of the limits or reimbursement amounts.
Expense Report Guidelines
If you are creating your own expense templates or customizing the templates we provided above, make sure to consider the following:
Aside from filling out an expense report form, be sure to communicate what else your employees need to provide (such as original receipts, pictures of receipts, dates, times, client names, and reasons for expenses). This is usually the section of your expense policy that needs to be as clear as possible to prevent issues.
Based on whichever expense report template you use, you may want to add columns to track client name and reason. In fact, some companies go so far as to require each employee to assign each expense to a cost center to make it easier for the accounting team to do data entry.
Additionally, make it clear in your policy that any expense over the limit, if one is set, needs approval. This can be a good policy if team members buy equipment that can be expensive.
Notify your employees about how they report expenses to you, whether through their supervisor, HR, or your payroll provider. We recommended having one point of contact (POC) for tracking reimbursable employee expenses to avoid chaos. The POC can also ensure that expenses are properly allocated to the correct cost center in your accounting system.
Additionally, you should let your workers know how often they should submit expenses, e.g., immediately or on the first of every month. Be as specific as possible by listing the day of the month or date by which they should submit expense reports and whether the expenses expire.
The most common reimbursement periods are monthly and quarterly, with an expense submission timeline of at least 5–10 days before the next payroll cycle. If expenses are reported late, they can be reimbursed the following pay period.
Documentation & Implementation
The most common practice to document employee expenses is to use an expense report form, like our template above. Whichever method you use, you should track employees’ expense amounts and make sure they are appropriate.
We recommend keeping your expense form template in your company’s shared drive or leave copies in a designated folder that everyone has access to. Have your accountant or HR professional review your expense reporting policy before you distribute it to employees. Then, once you have finalized it and the accompanying form, ensure all employees get a copy of the policy and understand it (e.g., hold a companywide meeting or video call).
Have each employee sign and date a copy of the expense policy and document this in their personnel files (electronic or paper is fine). The expense policy should also be added to your company’s employee handbook.
How Expense Reimbursements Affect Payroll
When an employee is reimbursed for expenses incurred on behalf of the company, it can affect payroll calculations depending on how the reimbursement is distributed. If paid through payroll with a nonaccountable plan, it increases the employee’s gross pay because the reimbursement amount is included in the employee’s taxable income. Any associated taxes (e.g., Social Security and Medicare) are also taken out of that amount.
Use our free payroll templates to help you calculate employee expenses.
An employee expense policy and an employee expense report form are fairly easy to create and implement. Download our free templates to give you insight into your employees’ spending and provide you with valuable records.