A simple guide to writing a travel expense policy for a small business
Employee travel and expenses is the second largest controllable cost after salaries, so it’s only sensible to create a travel expense policy. And it’s just as important for small businesses as it is for large ones – indeed, with tighter funds, it’s even more important in many cases. A well thought out travel expense policy will help your small business to minimize costs and maximize compliance when you have employees who travel on business.
What is a travel expense policy in a small business?
A travel expense policy is a set of company rules setting out how employees can book corporate travel as well as spend money on work-related expenses.
It’s needed because when it comes to travel and expense management, the priorities of the organization and those of the employee don’t always align. While companies are focused on cost, compliance, and safety, employees look for comfort, luxury, and convenience. It’s therefore suggested that you draw up a travel expense policy that falls somewhere in the middle.
Why should small businesses make a travel expense policy?
One advantage of working in a small company is getting to work in an environment free of the bureaucracy that’s so common in larger organizations. But as far as expense management goes, a little bit of structure goes a long way, and there are benefits of having a travel expense policy:
- It provides clear guidance to employees—they won’t have to check with finance every time they need to make a payment. The rules are already set out.
- It eliminates any grey areas. The most common expense policy violations arise from a lack of understanding of policy, alongside an unwillingness for having to search for the answer.
- It makes employee spending more predictable. Whoever is dealing with the business’ finance (in smaller companies, this might be the office manager) will have an easier time controlling company spending when there are restrictions in place that determine how much employees can spend.
- An added benefit of having a documented expense policy is that your employees won’t need to declare their reimbursements as taxable income. They’ll thank you for this come tax season.
What do small businesses need to include in their expense policy?
There’s a lot to consider when arranging business travel.
For starters, it’s important to define budgets. This should be based upon your business’ current financial situation. It’s also important to bear in mind that budgets can fluctuate with the seasons, so you should aim to provide a general rule. And whilst a large corporation might need to include maximums for every major city and route in the world, a sufficient travel expense policy for small businesses might include just a few popular cities and routes that the company travels.
It’s also worth reviewing the booking tools that employees can use, how far in advance they should book to maximize savings, and how they should pay. With TravelPerk, everything you need is in one place. You can book from the world’s largest inventory and with our Premium feature, define a travel policy and approval workflow in under 2 minutes
Make sure you set out what the company will cover. For example, if an employee is having dinner on a work trip, it’s a given that this should be covered as a travel expense. Now let’s say this employee wants to treat a client or contact to dinner, because they think it would positively impact the business relationship. Covering these costs would definitely be in the best interest of your business.
A good travel expense policy should also cover expense filing and a plan for reimbursements. Questions you need to answer are:
- How should staff file their expenses, and what’s your system for managing expenses?
- What documentation is required, e.g. bank statement or receipt?
- When can employees expect to be reimbursed? Will they receive the money in the next pay run, or separately?
- Is there a time limit to claim on expenses?
A Lot of your policy will depend on your business goal and current travel set up. For example, using a small business travel agency will have higher costs for changing flights than say a booking tool, so you may want to be more restrictive – or perhaps you need sales staff to be able to react quickly and visit clients, these are all things to consider in your expense policy.
Sample expense policy for small businesses
Check out TravelPerk’s expense policy template, which you can copy, paste and customise based on your business needs and culture.
How should you communicate the policy?
- The #1 rule is to keep it simple. The effects of mistakes or misunderstandings are magnified when you work at or own a small business, which is why it’s immensely important for small business corporate travel policies to be clear.
- Be consistent. It should also be a document that applies to everyone. Travel policies are equally applicable to upper management and they should lead by example. Try not to make exceptions.
- To banish the potential for any awkwardness, look to automate your process. Often at small businesses, it can be uncomfortable for someone monitoring employee expenses to be too direct with employees about what they can and cannot spend. Managers might be tempted to let some things slide. Automation solves this problem.
Frequent problems small businesses have when creating expense policies
Make sure to avoid the following classic errors:
- Using paper expense claims: this is another case for automation. Free apps are a good option if your business is small, and new to expense management software. This way you can try different apps to see which one works best for your business, before investing in a paid version.
- ‘Penny-pinching’: You don’t want your employee to have to spend hours trawling the web to find something that fits your budget. As well as causing major problems for productivity, this will lead to unhappy employees. So, you should make the policy as fair and flexible as possible.
- A policy that is too lax or loose leaves the door open for employees to take advantage. Expense report fraud is far more prevalent than you would like to think and has been estimated to cost U.S. businesses more than $2.8 billion per year.
- Not reviewing your policy regularly: let it be road-tested by your employees and then see if there’s room for improvement.
- Not checking that your policy is compliant with your local laws, i.e HMRC, state laws or IRS regulations. Seems obvious, but make sure not to forget!