Organizations establish business travel allowances to cover expenses incurred by staff during their corporate trips. Typically these reimbursements are made to cover the cost of hotel rooms, meals, and transportation. However, policies should extend to include anything required for the employee to conduct the official business outlined in their itinerary. There may also be additional provisions for longer business trips or where employees are required to entertain clients.
Are business travel allowances a legal requirement?
In some countries, companies have a legal responsibility to provide an adequate system for reimbursing employee travel expenses. The mechanics of how businesses handle travel allowances will vary from country to country, as will the implications for organizations' tax returns.
Generally, the costs incurred on corporate trips have a legitimate business purpose and are therefore tax-deductible. As businesses can often offset these expenses, it's in their best interests to not quibble over reasonable travel-related expenses. Expecting employees to pay out of pocket on top of travel time they put in outside their usual work hours is a sure-fire way to damage staff retention rates.
In the United States, most companies will have what is known as an accountable plan for their employee's travel expenses. An accountable plan follows guidance from the Internal Revenue Services (IRS), enabling employees to obtain reimbursement for business costs without submitting these payments as part of their annual income tax return.
What does a business travel allowance usually cover?
While the stipulations of reimbursement will vary from one business to the next, travelers will find their covered travel costs will typically include:
- Transportation expenses for additional travel outside employees' regular commute. This can encompass airfares, taxi or local transportation costs, car hire, motorway tolls, parking fees, and standard mileage rates when staff use their personal vehicles.
- A meal allowance for food and drink consumed on the business trip. Usually, this will cover breakfast and dinner only when there has been an overnight travel.
- Accommodation provisions.
- Cover for incidental expenses such as tips and gratuities.
- Entertainment expenses for cases where travelers need to step outside their food and beverage stipend for business meals or drinks with clients.
- Travel insurance policies purchased for the business trip.
- Costs for medical considerations such as vaccinations for international travel.
- Provisions for dry cleaning or other laundry services when employees are required to stay away from their usual work location for extended periods.
What is a per diem allowance?
Rather than reimbursing individual receipts and purchases, some companies and organizations prefer to set travelers a flat amount they can spend per day. This practice is known more commonly as a per diem rate and aims to make travel expenses more straightforward for all parties involved. Per diem rates give business travelers the flexibility to make arrangements to their comfort level, and companies may also find it a more cost-effective way to set travel budgets.
However, setting a per diem rate for your travelers can be challenging, especially if their business trips take them to various destinations. For domestic travel within the continental United States (CONUS), organizations can use this handy M&IE calculator from the U.S. general services administration (GSA).
How can companies standardize their procedures for business travel allowances?
Companies will typically find that travelers use their business travel allowance in different ways. Some will prefer to spend more on a higher standard of accommodation, while others might prefer to splash out on room service to avoid walking alone at night.
Standardizing the amount can help simplify matters, but the corporate travel policy is essential to keep travel spending compliant. This document needs to outline what will and won't receive reimbursement before staff rack up expenses and guide team members through claiming their travel costs.
Establishing a transparent approval process is another excellent tool for standardizing business travel allowances and ensuring management green lights significant expenses pre-departure. Using a system like TravelPerk can help businesses streamline their travel booking process by plugging in corporate travel policies and enabling automated approvals.
A game changer for compliance, automation also allows business travelers a level of control over their arrangements, improving employee satisfaction and saving precious time for busy travel managers.
After returning from a business trip, organizations need to support employees with their expense reimbursement. After navigating hectic itineraries and missing time with loved ones, nothing makes corporate travelers more disgruntled than having to wade through a complicated travel reimbursement process.
Setting clear guidelines and establishing a reasonable period of time to complete necessary admin is a vital gesture to ensure business travelers' hard work on the road doesn't go unappreciated. This information needs to be straightforward and standardized to aid compliance and save time for more valuable business tasks.
Where can you define your business travel expense policy?
The definition of business-related travel expenses will vary from one company to the next. It is vital to have documentation in place that makes allowances clear to employees before they depart.
Every company that engages in corporate travel should work to maintain a clear and updated travel policy. This document will outline the rules regarding corporate travel, including how employees should treat business travel allowances. The company travel policy will define, for example, the difference between a business and a personal expense.
Established guidelines become especially important when businesses allow staff to add vacation time to their corporate trips. Designed to be an attractive fringe benefit, this could include traveling with family members or other non-employees after completing their itinerary for the company.
In these instances, having a defined reimbursement system can assist team members in separating actual expenses accrued on business days from those incurred for personal reasons. Setting clear expectations can ensure employees keep original receipts and other documentation needed both for substantiation and for the company's tax purposes.
Some companies offer staff a company credit card to use to simplify reimbursing travel expenses for corporate trips. Employees then need to demonstrate on their expense claims that all costs incurred were for business purposes and part of agreed travel allowances. Any excess amounts outside the company's policy would be paid out of pocket by the employee.
This method of organizing travel expenses is prevalent where a company has team members who frequently travel for business. But, other businesses will ask employees to use their personal credit cards and claim for reimbursable expenses on their return.
Whichever route they take, businesses need to spell out their approach to travel expenditure in their corporate travel policy. As a company, you need to outline the corporate travel regulations you want your employees to follow. Businesses might instigate these rules to keep travel costs in line with annual budgets, but corporate culture might also shape internal policies.
For example, businesses passionate about sustainability will likely request employees take public transport over hiring rental cars wherever possible. Whatever rules and stipulations you put in place as an organization, outline and explain them as much as possible in your corporate travel policy.
What is a realistic business travel allowance?
The answer to this question will vary according to a range of factors. The destination is perhaps the most critical. Business trips to foreign countries will inevitably have a higher cost than domestic travel.
But even corporate trips within the CONUS will vary wildly in their actual costs. From lodging expenses to the average price of an evening meal, on the whole, a round trip to a major hub like New York will cost more than a business trip to a smaller city. The nature of the employer's business can also affect allowances. Lawyers, for example, might need a higher budget for entertaining clients than someone working in another sector.
Other factors that might influence travel costs can be the seniority and preferences of the traveler. For example, organizations might set aside separate travel budgets for their CEOs and other executive travelers. These extended policies could include allocations for first or business-class air travel or more generous meal expenses for top-tier personnel.
Ensuring a comfortable yet cost-effective business trip can be challenging. Setting a clear corporate travel policy can help assist employees in selecting arrangements for their corporate journeys. Having clear boundaries can also simplify submitting receipts and business expense reimbursement.
By combining a solid travel policy with an online booking tool like TravelPerk, businesses can streamline the booking process for their business travelers while achieving new records of compliance. Please speak to our team today to see how TravelPerk can help you establish a clear corporate travel policy, generate more detailed expense reports, and save on your annual travel spend.
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