7 Min. Read

What Is a Travel and Expense Policy? A Comprehensive Guide

August 16, 2021

A travel and expense policy serves a number of purposes for your business. For one thing, it’s essential to control costs. Think about it this way. As a business owner, you claim as many tax write offs as you can. If you’re smart, you do the same on your personal tax return. It’s not cheating. You’re just trying to get all the money you’re entitled to. Honest employees treat business expenses the same way. If they’re allowed to claim an expense, they’re going to do it. A policy simply sets the ground rules.

Another important reason to have a travel and expense policy is to prevent fraud. Without a policy in place, even advanced accounting software can have trouble doing this. With a policy in place, there’s no ambiguity. An expense is either permitted, or it’s not.

Let’s talk a little more about T&E policies, and why your company should have one.

Here’s What We’ll Cover:

Travel and Expense Policy Basics

What Factors Should I Consider?

Creating an Effective Policy

How Do I Enforce a Travel and Expense Policy?

Key Takeaways

Travel and Expense Policy Basics

A travel and expense policy is a set of rules that defines which expenses are acceptable. It will set out how employees book travel for business trips, as well as other similar costs. As a basic example, companies will require original receipts for any purchases. Employees may also be required to put business expenses on a company credit card.

The main purpose of a T&E policy is to control spending. With no policy in place, it can be tough to predict employee spending. By creating specific rules, it’s easier to guess how much any individual traveler will spend.

To create a travel and expense policy, the company’s finance and HR teams will need to collaborate. Finance can help with data on current expenses, and help create guidelines. HR can ensure that policies are communicated effectively, as well as that the company is compliant with applicable laws.

Once a policy is in place, employees will then need to follow those guidelines for travel and other business expenses. The policy will tell employees how much they’re allowed to spend, how to track their spending, and how to get reimbursed. There will also be limits on different types of purchases. For instance, many companies will reimburse business meal expenses, but not alcoholic beverages.

At this point, your finance team will need to enforce the policy. If expenses do not fall within the guidelines, they should not be reimbursed. You may also want to provide tools like company credit cards to make adherence easier. You’ll also need to continually communicate your policy to new employees, and update existing employees on any changes.

What Factors Should I Consider?

Not all companies should have the same T&E policy. Some companies need to reimburse incidental expenses, while for others, that’s not a concern. Some companies provide a per diem allowance, while others only reimburse actual expenses.

Before you create your policy, you should analyze your current business travel expenses. Expense and receipts tracking software can make this much easier. In your analysis, consider the following factors:

How much does an average business trip cost?
What percentage of your employees travel?
How often do they travel?
What is your return on investment? This can be easy or difficult to measure, depending on the nature of the trips.

Now that you know the answer to these questions, it’s time to start writing your policy. As you create it, make sure to keep the following in mind:

Travel – What methods of transport are acceptable? Are employees allowed to travel first-class or business class? Will you reimburse for extra luggage? What is the overall spending limit?
Personal vehicle expenses – How are employees reporting their mileage? And what are your limits for parking expenses?
Lodging Expenses – What is the acceptable rate for a hotel room? Do employees need to stay at a certain hotel?
Meals – What is your employees’ per diem allowance for meals? Are they allowed to take clients out to dinner? Is room service included?
Company credit cards – Who is allowed to use them? What are they allowed to use them for?
Expense reporting process – How do employees keep track of their out-of-pocket expenses? Who do they report them to? How?
Miscellaneous expenses – What if an employee’s luggage is lost, and they need to buy clothes? What if they get bumped from their flight and need to pay an additional cost to re-book?

If your travel and expense policy answers all of these questions, you’re well on your way to creating an effective policy.

Creating an Effective Policy

When you’re creating your policy, you’ll need to think about more than just the basics. You’ll also need to think deeper about the relationship your business has to expense reports.

For one thing, it’s important to consider who’s traveling. Different team members may have very different needs. For example, it probably doesn’t make sense for your CEO to stay at the Best Western. Even if you’re trying to cut costs, you want your CEO to present a certain image. On the other hand, a budget hotel makes perfect sense for a field technician or junior employee.

Another question is how your employees are going to be reimbursed. Will they receive a separate check, or will the money be rolled into their regular paycheck? From a financial perspective, this may seem irrelevant. But it’s important to have a standard procedure for accounting purposes.

On a more mundane level, what’s your travel budget? If you need to tighten your belt, you’ll want to craft a stricter policy. On the other hand, you may have money to spare. In that case, you could use generous travel allowances as a way to attract new talent.

Last but not least, you need to communicate your policy clearly. You don’t want there to be any ambiguity about which expenses are acceptable. The clearer you are from the outset, the less trouble you’ll have enforcing compliance. This also means distributing your policy to new employees, and making it available on your company website.

How Do I Enforce a Travel and Expense Policy?

A travel and expense policy is only effective if people actually follow it. So how do you make sure your employees’ expense reports comply with company policy?

The first step, as we mentioned, is to communicate your policy to your employees. Most people want to follow the rules, so make it easy for them. The expense reporting process should be easy to understand. Travel expense reports should be simple to fill out, and employees should be reimbursed promptly. The easier you make it to comply, the more your employees will police themselves.

But what do you do about people who try to claim excess reimbursement? To begin with, you can stick to your guns. If your policy says you don’t pay for parking tickets, don’t pay for them. If it sets a maximum per diem rate, do not reimburse above that. And never pay for expenses without an itemized receipt.

Software can be helpful in this regard. For example, there are business travel booking services that will disallow certain types of flights. You can require your employees to use that particular service. Meanwhile, expense tracking software can help you monitor where your expenses are going.

Key Takeaways

As you can see, every business needs the policy to cover business travel expenses. Fortunately, it’s a simple task that any competent lawyer can handle. Not only that, but there are plenty of free examples online.

We hope you enjoyed this guide. For more articles and blog posts, take a look at our resource hub. There, you’ll find reams of useful information to help your business succeed.