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There could be instances where your employees make payments for business expenses without taking from the company's purse –travels, quick payments, phone calls, and more.
These out-of-pocket payments made by employees are deemed eligible for reimbursement. Reimbursements compensate employees for the personal expenditures they've incurred while carrying out their job duties, which extend beyond their regular compensation.
The overarching objective of expense reimbursement is multifaceted. It aims to facilitate the efficient and accurate settlement of work-related transactions, ensuring that employees are fairly compensated for their expenses and that the financial interests of both the employer and the employee are protected. This process also fosters accountability, as it necessitates proper documentation and validation of expenses, thereby instilling trust and transparency in the reimbursement process.
Gusto, a leading payroll, and HR platform, offers a streamlined solution for processing expense reimbursements, simplifying what can often be a complex and time-consuming task.
In this guide, we'll delve into the details of processing expense reimbursements for employees using Gusto. Whether you're new to Gusto or an already registered user, mastering this aspect of Gusto's capabilities can significantly improve your organization's financial management and employee experience.
From navigating the submission and approval process to best practices for managing expenses on Gusto, we'll walk you through each step with clarity and precision. By the end of this guide, you'll know necessary to streamline expense reimbursement processes, saving time and ensuring compliance with regulations.
Gusto is a cloud-based platform that provides payroll, benefits, and HR solutions for small businesses. It streamlines tasks like payroll processing, employee onboarding, benefits administration, and compliance management. Gusto aims to simplify complex processes and offers a user-friendly interface for employers and employees alike.
What is employee reimbursement?
Employee reimbursement is the process through which an employer compensates employees for any expenses they have paid for while carrying out their job responsibilities. This can include various expenses such as travel costs, meals, lodging, office supplies, or any other business-related expenditures. The reimbursement is typically based on receipts or other documentation provided by the employee to prove the validity of the expense. It ensures that employees are not personally or financially burdened by expenses necessary for their work and helps maintain fairness and equity in the workplace.
How to process an employee expense reimbursement on Gusto
Step One: Login to your dashboard (check here for how to create an account)
Step Two: Navigate to the "Payroll" option
Step Three: Click on "Run payroll"
Step Four: Click on "off-cycle payroll" to run a payroll outside your regular schedule
Step Five: Type the name of the particular employee you want to reimburse and check the box next to the name
Step Six: Click Continue
Step Seven: Enter date details
- Change the work period to the date of the incurred expenses
- The date you would like the employee to receive the payment
Step Eight: Click continue
Step Nine: Block deductions and contributions as this is a reimbursement and not a regular payment cycle. (excluding tax and 401(k) contributions)
Step Ten: Confirm payment method
Step Eleven: Add a description and an amount (the description is optional)
Step Twelve: Click save
Step Thirteen: Make sure the "pay by" is set to direct deposit. Click save and continue
Step Fourteen: Leave the "Time off" page blank
Step Fifteen: Click save and continue, and click submit payroll
Best practices to follow for processing employee reimbursements:
1. Establish Clear Policies: Have well-defined reimbursement policies outlining what expenses are eligible, documentation requirements, approval procedures, and reimbursement timelines.
2. Use an Online System: If you’re new to the online system, Gusto is a good option to use. Just as we have shown you, implementing an online reimbursement system to streamline the process reduces paperwork and improves efficiency. This could be through dedicated software or integrated into existing HR or finance systems.
3. Require Documentation: Ask employees to provide detailed receipts or invoices for all expenses submitted for reimbursement. This helps verify expenses and ensures compliance with company policies and tax regulations.
4. Set Clear Submission Deadlines: Establish deadlines for employees to submit reimbursement requests, typically within a reasonable timeframe after the expense was incurred.
5. Implement Approval Workflow: Define a clear approval workflow specifying who is responsible for reviewing and approving reimbursement requests at each level of the organization. Is it HR or the accountant? It’s advisable to separate the responsibilities of requesting, approving, and processing reimbursements to prevent fraud and errors.
6. Communicate Policies: Ensure employees are aware of reimbursement policies and procedures through regular communication, training sessions, or documentation.
7. Prompt Processing: Process reimbursement requests promptly to avoid delays in payment and maintain employee satisfaction.
8. Maintain Compliance: Stay up-to-date with tax laws, accounting standards, and regulatory requirements related to employee reimbursements to ensure compliance.
9. Regular Audits: Conduct periodic audits of reimbursement records to identify any discrepancies, errors, or potential fraud and take appropriate corrective actions.
10. Keep track of reimbursed expenses: To effectively track reimbursed expenses, it's essential to maintain organized and detailed records using digital tools like spreadsheets or dedicated expense management software. This allows for easy categorization of expenses, such as travel or supplies, facilitating budget tracking and financial analysis. Each expense should be documented with receipts, invoices, and approval records, ensuring compliance with company policies and tax regulations. Dates of expense and reimbursement should be recorded accurately for tracking purposes, with regular reconciliation of expenses with financial records to identify any discrepancies. Implementing automated systems streamlines data entry and reduces errors while documenting approval workflows ensures transparency and accountability. Securely storing backup documentation electronically or physically prevents loss or damage, while maintaining audit trails tracks changes made to expense records. Regular reviews of reimbursed expense records help identify trends and areas for improvement in the reimbursement process.
Why you should use automated systems like Gusto to streamline expense reimbursement processes
Streamlining expense reimbursement processes is crucial for several reasons:
1. Streamlining expense reimbursement processes saves time and reduces the administrative burden for both employees and finance teams. Automated workflows enable faster processing, eliminating manual tasks such as data entry and approval routing.
2. Automated systems reduce the risk of errors associated with manual data entry, calculation mistakes, or lost receipts. By capturing expenses digitally and enforcing policy compliance, organizations can ensure accurate reimbursement amounts and reduce the likelihood of fraudulent claims.
3. Efficient expense reimbursement processes result in cost savings by reducing overhead costs associated with manual processing, such as paper, printing, and storage. Additionally, by enforcing spending policies and flagging non-compliant expenses, organizations can prevent unnecessary expenditures and identify areas for cost optimization.
4. Simplified and user-friendly reimbursement processes enhance the employee experience. Employees appreciate timely reimbursements and easy-to-use expense reporting tools, which contribute to higher morale and productivity.
5. Streamlined processes facilitate compliance with internal policies and external regulations governing expense management. Automated systems can enforce spending limits, validate receipts, and generate audit trails, ensuring that expenses are in line with company policies and regulatory requirements.
6. Automated expense management systems provide valuable insights into spending patterns, trends, and areas of potential savings. By analyzing expense data, organizations can identify opportunities for optimizing budgets, negotiating better vendor contracts, and improving overall financial performance.
Are employee reimbursements taxable?
Employee reimbursements for expenses incurred in the course of their work may or may not be taxable, depending on the nature of the expense and how it's treated by both the employer and tax authorities. Here's a general breakdown:
- Non-taxable reimbursements: Expenses that are considered legitimate business expenses and are reimbursed by the employer typically aren't taxable to the employee. These might include expenses such as business travel, meals, and entertainment directly related to business activities, required tools or equipment for the job, and other similar expenses. As long as the expenses meet the criteria set by tax authorities, they're usually not considered part of the employee's taxable income.
- Taxable reimbursements: Some reimbursements might be considered taxable income to the employee. These could include reimbursements for expenses that are considered personal or not directly related to the job. For example, if an employer reimburses an employee for a personal expense like gym membership fees or commuting costs that aren't related to business travel, those reimbursements might be considered taxable income.
- Both employers and employees need to understand the tax implications of reimbursements. Employers should ensure that their reimbursement policies comply with tax laws and regulations, and employees should consult with tax professionals or refer to guidance from tax authorities to understand how reimbursements affect their tax obligations.
Additionally, tax laws and regulations can vary by jurisdiction, so it's advisable to consult with a tax professional or refer to specific guidance from the relevant tax authority in your area for the most accurate and up-to-date information.
What are the reimbursable and non-reimbursable expenses?
Reimbursable expenses are typically those costs that an employee incurs while conducting business on behalf of their employer, which the employer agrees to pay back. These expenses are usually directly related to the employee's job duties and are considered necessary for the operation of the business.
According to IRS guidelines, companies are required to implement an accountable plan for reimbursing employee expenses. Failure to do so results in expenses being treated as earned wages and subject to taxation in the US. The reimbursable expenses outlined in IRS Publication 15, Circular E, Employer’s Tax Guide, must adhere to certain criteria:
1. Expenses must be related to business duties.
2. Expenses must be substantiated with proof of payment (e.g., receipts, invoices, canceled tickets) or deemed substantiated (e.g., per diem rate) within a reasonable timeframe.
3. For expenses paid in advance, any excess amount must be returned by the employee within a specified reasonable period.
Here are some examples of reimbursable expenses:
- Business travel: This includes expenses such as airfare, train tickets, rental cars, hotel accommodations, and meals while traveling for work purposes.
- Meals and entertainment: Costs associated with meals or entertainment that are directly related to business activities, such as meals with clients or team meetings.
- Transportation: Expenses for mileage, parking, tolls, and public transportation when traveling for work purposes.
- Professional development: Costs for attending conferences, seminars, workshops, or training sessions directly related to the employee's job responsibilities.
- Supplies and equipment: Purchases of necessary tools, equipment, or supplies required for the job.
- Communication: Expenses related to business communication, such as mobile phone bills or internet costs if they're used for work purposes.
Non-reimbursable expenses, on the other hand, are costs that an employee incurs but are typically not covered or reimbursed by the employer. These expenses are often considered personal in nature or not directly related to the performance of job duties. Examples of non-reimbursable expenses may include:
- Personal items: Expenses for personal purchases or activities that are unrelated to work, such as personal meals, clothing, or entertainment.
- Commuting costs: Expenses for the daily commute between home and the workplace are generally not reimbursable, unless the employee is traveling to a temporary work location.
- Non-business-related travel: Costs for personal vacations or trips that are not related to work activities.
- Fines and penalties: Expenses incurred due to fines, penalties, or legal violations unrelated to work.
- Personal health and wellness: Expenses for personal healthcare, fitness memberships, or wellness programs unrelated to work activities.
It's important for both you and your employees to have clear policies in place regarding reimbursable and non-reimbursable expenses to ensure compliance with tax laws and company guidelines.
In conclusion, implementing robust reimbursement policies and navigating the process efficiently are vital for fostering a transparent and mutually beneficial relationship between employers and employees. The best practices outlined in this guide, such as maintaining clear documentation, communicating effectively, and leveraging streamlined tools like Gusto, not only ensure compliance with tax regulations but also cultivate a culture of trust and accountability. Ultimately, a well-executed reimbursement process not only benefits the bottom line but also enhances employee satisfaction and contributes to the overall success of the organization.
