Growth and Optimization
Business Expenses List: What to Include In an Expense Policy
Effectively managing business expenses is a crucial aspect for organizations of all sizes. The process of defining, managing, and tracking these expenses is vital for maintaining sound business practices and fostering positive employee engagement.
Implementing a robust employee expense policy is instrumental in achieving these goals. A well-defined and easily accessible policy enhances employee compliance, saves managerial time, and establishes consistency in expense rules for all employees. Crafting a comprehensive business expense policy is a strategic investment that pays dividends in streamlined operations, financial clarity, and employee satisfaction.
What is considered a business expense?
Business expenses encompass a range of common costs incurred in the ordinary course of running a company, irrespective of its size. While various types of business expenses exist, those related to employee activities, especially travel, are among the most prevalent and must be explicitly outlined. Clear rules and guidelines for submitting expenses and reimbursement procedures should be provided, ensuring both employees and managers have a transparent understanding of expense management.
Understanding your business expenses is essential for gauging the overall health of your business. Accurate organization and tracking of expenses enable you to determine net profit, taxable income, and other crucial elements necessary for effective financial management. This clarity empowers strategic planning and financial decision-making within the organization.
Managing expenses accurately can significantly impact your tax liability, as certain expenses qualify as business tax deductions. Identifying these deductible expenses, classified as "ordinary" (meaning common to the industry) and "necessary" (meaning essential for operating your business) by the IRS, is vital for optimizing tax benefits.
What are the types of expenses in business?
Business expenses can be categorized into three main types:
- Fixed. These expenses remain the same across business periods, such as rent and insurance. They are often referred to as overhead.
- Variable. These expenses can differ across reporting periods or within a period itself. Utilities and shipping costs are common variable expenses. Travel and other employee business expenses fall in this expense type.
- Periodic. These expenses do not occur in every reporting period and can be one-time or occasional expenses, such as emergency repairs or annual bonuses.
Different Business Expense Categories
Business expense categories are broad classifications that bundle together common expenses. The IRS provides a helpful list of business expense categories, which can be used as a guideline. Among the most common expense categories are:
- Employee benefits
- General expenses
- Marketing and advertising
- Research and development
- Travel-related costs
- Professional development
Employee-related expense categories, such as travel, should be detailed in your policy. This includes various subcategories like transportation, lodging, remote working expenses, meal and entertainment expenses, and more. Here are some of those categories and the business expense list for each:
- Travel-related expenses
- Transportation (air, rail, and road travel)
- Public transit, taxis/ car rental, rideshares
- Mileage reimbursement rates
- Agency booking fees
- Other travel-related expenses
- Baggage fees
- Foreign currency charges
- Visa fees
- Service tips
- The hire/use of a GPS
- Lodging expenses
- Airbnb and other vacation rentals or alternative staying options
- Travel allowance
- Laundry and/or dry cleaning
- Remote working expenses
- Office furniture
- Computer hardware, software, and equipment
- Home insurance
- Broadband internet connection
- Virtual meeting lunches
- Meal and entertainment expenses
- Beverages and/or snacks for meetings
- Business meals for meetings
- Individual beverages and/or snacks
- Individual meals – breakfast, lunch, and dinner
- Per diems
There are other business expense types that employees may incur while doing their work. These should also be included in your expenses reimbursement policy:
- Professional membership fees
- Conference and tradeshow registration fees
- Postage for business purposes
- Conference/seminar/training admission
- Shipping fees
In addition to the expense categories, your policy should list those items that are not eligible for coverage by your expense policy. These include:
- Mini bar contents
- Parking fines
- Damage to personal vehicles
- Corporate card late fees
- Loss/theft of goods
Creating an effective business expense policy
How should you start in building an effective business expense policy? It starts with having a clear understanding of the goals and objectives you want the policy to convey.
Be sure that the key stakeholders are engaged in the conversation. Human resources, payroll, employee benefits, and finance departments should play a key role. So, too, should departments that are frequent users of a policy.
Having the major stakeholders involved in the planning, development, and review of your policy ensures buy-in and a practical approach to what the policy should convey.
Here are some key considerations to include in the development of your expense policy:
- Identify clear categories. Make sure the categories reflect the way your organization does business. Employees need to understand the categories and why certain expenses fall into each.
- Be simple and clear. Precise language helps prevent hard feelings or confusion when trying to get reimbursed. Clear language with examples is important.
- Define processes approvals. Be sure employees know how to file their expenses and who will approve them. These processes need to be transparent and include the guidelines for challenging a rejected expense.
- Communicate. Whether you’re developing a policy for the first time or updating an existing one, communication is paramount. Employees need to understand why the policies are necessary, how they affect budgets and management, and the important roles employees play in the successful use of the policies.
- Update regularly. An effective expense policy evolves with the times. For example, prior to the COVID-19 pandemic, there were very few guidelines about remote work and companies had few rules on what home-based work expenses were covered.
- Integrate systems. A good policy is backed by great technology. Look for solutions that integrate your expenses management, payroll and accounting systems for seamless and efficient business operations.
- Check the regulations. There are myriad regulations that govern employee expenses, from IRS rules to regional and local laws. Ensuring that your guidelines remain compliant is critical.
How to keep track of business expenses
This list is just a start. If you're ready to build an expense policy for your business, use our expense policy builder to create your own customizable expense policy template. (We can help with an invoice policy template, too!)
Once you have an effective expense policy in place, there’s even more to do to boost business resilience. Automation is the key to unlocking visibility into where your money is being spent. Check out the AMI-Partners report to learn the value of automating expense, travel, and invoice management. Watch the video below to see SAP Concur solutions in action.