November 09, 2021 by Andrea Rajic

Hybrid Workplace 101: Tracking Employee Expenses

Hybrid Workplace 101: Tracking Employee Expenses

Table of contents


    What Are Employee Expenses?


    What Are Some Examples of Employee Expenses?


    Compliance Implications for Employee Expenses


    Tracking Employee Expenses in a Hybrid Work Environment

Distributed Work

An employee’s net salary is one thing, but the overall employee costs for the employer are a different story.

The latest stats show that the employer costs for employee compensation range from $36,64 per hour in private industry to $38,91 per hour for civilian workers, and $53,59 per hour in state and government positions. These numbers included salary, health insurance, and other benefits.

But there’s more that comes into play when you run your own business and have employees to take care of. Operational costs form a vital part of your overall business expenses, maybe even more in a hybrid work environment.

In this article, you’ll learn what your employee expenses may involve in a hybrid team and how to manage and track them efficiently.

What Are Employee Expenses?

Sometimes, the tasks your employees perform for you may include additional costs that are not covered by their regular salary or an hourly wage.

For example, your sales representative or partnership manager may need to take a business trip to negotiate with new clients or partners. In that case, who covers the cost of their travel? Typically, it’s the employer, and a business trip is a common type of employee expense.

What Are Some Examples of Employee Expenses?

In most companies, the C-suite decides which expenses are considered allowable - it means that the company covers the cost in advance or reimburses the employee after the expense has been made.

  • Business trips (tickets, gas, hotel accommodation)
  • Equipment
  • Office supplies
  • Food and drinks

In a hybrid work environment, you may not need to cover office supplies, but there are other expenses to get prepared for.

For instance, if you run a distributed team, you may need to provide them with suitable computers to work on. In that case, you’ll either instruct the employees to buy the computers on their own and reimburse the expenses later, or send them money so they can go get the necessary equipment.

The same goes for plane tickets if you organize a company retreat or a mandatory meeting at the headquarters, or restaurant bills when you’re meeting with a client.

This isn’t a hard and fast rule, of course, but rather common practice. The rules vary by employer - some may decide to cover the employees’ internet or phone bills if they’re, for instance, technical support reps, who spend most of their time making business phone calls or assisting their colleagues. In any case, the main criteria are whether the expenses are made for business-related purposes or not.

And here’s a fun fact: in the UK, there are employers who even pay a portion of your eye test at an optician’s if you need to use a screen for most of your working hours.

Compliance Implications for Employee Expenses

The good news is that your employees can get tax relief for specific business expenses on their tax form if you don’t cover them. If the employees make a claim and it’s accepted, their taxable income is reduced and they have to pay a smaller amount of money as income taxes.

You may consult the official government website to confirm which expenses are subject to tax relief, but, generally, they need to be ordinary and necessary for you to perform the business task in question. If in the US, the institution you’re looking for is the IRS.

In this case, ordinary means that the expense is common and accepted by others within your industry, while necessary means it’s helpful for your trade, but it doesn’t need to be indispensable.

Whatever your policy is, it’s vital that your employees are also aware of it. A study by SAP Concur showed that 65% of employees have no idea what the company policy regarding employee expenses is, so it’s no wonder unpleasant surprises may come up. You can even include the regulations about employee expenses in the contracts with your employees.

Tracking Employee Expenses in a Hybrid Work Environment

When your employees are around, it may be easier to track their expenses because you know where everyone is, what they need to get the job done, and how much of any material they may have. You know if they need to go for a coffee with a potential client, and, what’s even more important, you’re right there so the employees can ask you if they’re not sure whether to claim the expense or not.

So, what happens in a hybrid work environment? How do you track your employee expenses accurately and efficiently when they’re working from home? What counts as employee expenses anyway?

We’re sharing multiple tips to help you establish the best policy for your business.

1. Make a Plan and Include It in the Contract

The best way to track employee expenses is to anticipate them and define them clearly before you even get started. Creating an employee expense management plan (and a policy) before you grow your team can help you avoid issues in the long run.

Whatever position you’re hiring for, you know right away what kind of additional costs you may need to cover when the person starts working. Calculate an approximate budget and evaluate the potential costs to determine which ones will be allowable and necessary for the job to get done properly.

And then, adding a clause to your employees’ contracts, in which you’ll define employee expenses that may occur and how they’re reimbursed, is a simple yet effective way to inform all sides of what they can expect.

2. Set a Budget in Advance

Running a small business typically means your budget is still limited and you have to track everything to make sure your finances are on point. To ensure you won’t go overboard with employee expenses, you could set a budget in advance and see what you can do with it.

When you know how much you can spend on different areas of business and per employee, you can organize business trips or restaurant meetings more efficiently.

And if you run a mid-sized or big company, it’s still important to track your expenses. For instance, say you have an office kitchen that your employees regularly use and where they have food provided: fruits, drinks, snacks. It’s critical to ensure no food goes to waste on days when your teams work from home instead of coming to the office. Setting up a schedule will help you set a budget and track the expenses more easily.

Setting up a separate budget for specific categories - like hotel accommodation, plane tickets, restaurants, gas, etc. - usually works better than having an overall budget for everything. If you notice you’re spending your whole budget for a certain category faster than anticipated, it’s a sign you should go over your expense management plan again and rethink your categories.

3. Set up a Clear Process

To track employee expenses properly, you need to have a clear procedure in place because reimbursing or covering these expenses isn’t just giving your team additional pocket money.

Your workers need to know how they make a request, to whom, how many days in advance, and how they receive the money. To streamline this process, you can set up forms that your workers need to fill in and send to the person in charge. Reimbursements are typically made separately from the payroll, so make sure you also set deadlines for request submission and making payments.

In some cases, you may allow personal use of something that’s considered as a primarily business cost. For example, you may pay for your employee’s business trip and three-day hotel accommodation, but they’d like to stay and visit their family for two more days. To reimburse the expenses accurately, you could ask the employee to subtract the costs made during the personal stay from the total trip costs.

4. Nurture Transparency

Finances are a delicate matter, so there needs to be a high level of trust between you and your employees. You can allow your employees to track their own additional expenses and provide you with receipts and bills so you can reimburse them.

If you decide to do so, asking employees to take photos of the original receipts or submit the receipts physically when visiting the office is the safest way to ensure accuracy and honesty.

Despite planning your budget in advance, you need to be prepared for potential miscalculations or “going over budget” situations, especially if you pay your employees in advance instead of reimbursing their costs. If any discrepancies occur, your employees should know how to handle them, or let you know as soon as possible if more money needs to be allocated for a specific purpose.

5. Create a Company Expense Card

The fastest and the easiest way is to create a company expense card that works like a regular credit card. With it, you don’t have to create sheets and lists or waste any time on manual data entry - just collect bank statements and you’re on top of the expenses.

Each of your employees can have a designated card and a specific budget depending on their role and whether they have to travel, meet with clients, etc.

Note that, with the technological advances in the last couple of years, this card can also be virtual, which can make tracking employee expenses even easier.

6. Streamline the Process with the Right Tools

The truth is, employees hate reports - and when you track employee expenses, you need your workers to file reports at least once a month. This task robs them of the precious time they could use to focus on more significant work. So, how can you make tracking employee expenses less painful?

Other than introducing a company card, you can ditch the manual reports and automate the process with the right tools. If you bear in mind that research shows that 19% of expense reports contain mistakes, this is probably the right move for your business.

There is plenty of remote workforce management software options that make your job easier, and the same goes for tracking your team’s expenses. Using a centralized dashboard where you can overview all employee expenses and track them in real-time can be not only a time-saver but a significant money-saver as well. These dashboards reduce the possibility of error, automate specific steps in the process, enable asynchronous communication between your employees and the finance team, and allow you to see all the data in one place.

Who could ask for more?

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Written By

Andrea Rajic


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