Managing travel expenses can be a challenge. When employees are out closing deals or attending a conference on a business trip, business-related travel expenses and reimbursements can become daunting to reconcile.
This guide offers a comprehensive overview of business travel expenses and travel expense reimbursements, so you and your team can handle them efficiently.
What is travel expense reimbursement?
Travel expense reimbursement is the process where employers repay employees for costs incurred during work-related travel. These expenses can include transportation (like car rentals and tolls), lodging, meals, entertainment, and other business-related out-of-pocket costs that business travelers pay for out of pocket while performing their job duties away from their usual work location.
Employers usually have policies that specify which expenses qualify for reimbursement, required documentation such as receipts, limits on reimbursable amounts, and the submission process.
This process helps ensure employees are fairly compensated for business travel expenses while supporting transparency and financial control.
Examples of common travel expenses
Below are some of the most common travel expenses incurred by employees and reimbursed by businesses.
Accommodations
If an employee is traveling out of state or country, they’re likely going to need a place to stay.
It’s possible to book hotels in advance on a corporate card, but in some cases, the card needs to be present at check in making it easier for employees to cover the cost and get reimbursed.
Be sure to get an itemized breakdown of the cost of accommodation as part of the reimbursement process. Unnecessary add-ons like room service or in-room snack bars can easily slip through the cracks.
Business meals
Business meals can be reimbursed through a per diem or on a meal-by-meal basis.
Per diems are flat, daily amounts that can be used to cover any out-of-pocket expenses on a business trip, including meals. The document requirements are less strict as you don’t need receipts for every purchase made.
But if you choose to reimburse on a meal-by-meal basis, you’ll need a receipt for each purchase with separate line items for each.
Flights
Any travel by plane is eligible for reimbursement, but you should keep a keen eye on just how much is being requested for reimbursement. Add-ons like extra bags or upgrades to business or first class could be considered unnecessary.
Taxis and rideshares
Taxis and rideshare services make it easy to get from point-to-point without the use of a rental car. But you’ll need to prove the trip is for business purposes by requesting the destination and purpose.
Rideshare apps like Uber or Lyft make it easy to confirm these details as their ride summaries have both the origin and destination. Request a screenshot of these summaries to verify the ride was for business purposes.
Public transportation
In lieu of taxis and rideshares, buses, trains, subways, and other forms of public transit may fill the gap of point-to-point travel.
Similar to any other types of transit, there needs to be clear detail of the purpose of the trip. A day pass may be the better solution if the user will be making multiple trips throughout the day.
Use of a rental, personal, or business vehicle
There are three options for using a car during business travel.
Rental cars are reimbursable and, similar to business meals, can be compensated using a per diem. With a per diem or maximum allowable amount, you can keep costs in check and allow the employee to cover the difference if they want a luxury vehicle.
Use of a personal vehicle can be difficult to track. You may want to incorporate a standard mileage reimbursement rate with the employee tracking the distance of all business-related trips.
Use of a business vehicle will require exact costs, receipts, and documentation of the business purpose of all trips.
Supplies and equipment
Depending on the purpose of travel, employees may require specific resources for their responsibilities.
As an example, they may need to print promotional brochures for a booth at a tradeshow.
The purchase of these materials or any shipping costs to land equipment at the destination are eligible for reimbursement.
Access to work spaces
If the employee is keeping up with their day-to-day responsibilities while traveling, they may need to access a coworking space to tend to their duties. Or, as part of a pitch or meeting, they could rent the hotel conference room.
So long as these costs are related to their work responsibilities, they are eligible for reimbursement.
Dry cleaning and laundry
First impressions matter, and for longer trips, it’s reasonable to keep up with laundry to keep work clothes fresh for meetings and events. If the travel is more than a few days, it’s a cost often covered by the employer.
Event fees
A common reason for business travel is to attend an industry conference. Sometimes, there are additional events like networking socials or spinoff presentations that require an additional fee to attend. It's up to the business to determine if they are relevant enough for reimbursement.
Do employers have to reimburse travel expenses?
While many employers choose to reimburse travel expenses, they are not legally obligated to unless it's stipulated in an employment contract or company policy. However, providing reimbursement is a common practice that helps maintain employee satisfaction and loyalty.
On the one hand, it seems only fair to pay employees back if they buy a plane ticket for a work conference. But what if they spend over $300 on dinner every night?
To strike a good balance, companies typically outline the rules in a reimbursement policy, setting limits for things like food or lodging per day.
Reimbursement policies vary by company, so it's important to make your specific policies clear and easily accessible, reminding employees of what those policies are, where to find them, and how to submit expenses for reimbursement.
Creating and distributing a clear travel reimbursement policy helps ensure that employees are fairly compensated for their travel-related costs while also setting reasonable limits to protect your budget.
IRS rules for travel expense reimbursement
The Internal Revenue Service (IRS) provides clear guidelines regarding travel reimbursements. According to the federal government, to qualify as tax-deductible (or even partially tax-deductible), expenses must be "ordinary and necessary" for business. This means that they should be common and accepted expenses in your industry.
Employees should keep meticulous records to substantiate their claims while also providing the documentation the company needs in case it's ever audited—including receipts and invoices.
And employers should familiarize themselves with IRS regulations on travel expenses to ensure compliance.
Employee travel expense reimbursement guidelines
The travel expense reimbursement guidelines included in your policy should include:
- The categories of expenses that are eligible for reimbursement (e.g., meal expenses, lodging expenses, transportation, mileage on employee vehicles, and other business-related expenses) vs. other miscellaneous expenses that count as personal expenses, making them non-reimbursable.
- The documentation your company requires for reimbursement (e.g. receipts to prove actual expenses), and any minimal expenses for which you don't require documentation.
- The processes and deadlines for submitting expenses for reimbursement.
- Any limits on expenses, such as per diem rates or maximum lodging cost.
By making travel expense reimbursement guidelines transparent and straightforward, you'll make the reimbursement request process a lot smoother and improve employee satisfaction at the same time.
What is a travel expense reimbursement report?
Travel expense reimbursement reports are itemized, detailed outlines of all submitted expenses for reimbursement with documentation.
When an employee is traveling and uses their own funds or credit card for purchases, it's their responsibility to stay on top of every expense with documentation. Beyond a receipt of the purchase, they need to document the purpose of the purchase.
Once they’re back, the employee submits a travel expense reimbursement report. Every purchase needs to be a separate line item with exact amount and supporting document, as well as a description of the business purpose.
Once the finance team receives the report, they approve or refuse each expense and authorize a reimbursement amount. Each approved transaction is then recorded on the business’s books.
Travel expense reimbursement process
Requesting reimbursement for business travel expenses (and incidental expenses incurred at a business destination for business purposes) typically involves a few key steps:
- Gather documentation: Employees collect and save the receipts, invoices, and travel itineraries they need to prove their travel-related costs.
- Complete a reimbursement form: Employers usually provide a form for employees to fill out, including the amount of the expense, what it was for, and a way to upload their documentation.
- Submit for approval: Employees submit their completed form to the appropriate department, such as finance or HR.
Using expense management software can streamline the process, but employers may also want to consider assigning corporate cards with limited budgets to their employees.
This avoids the reimbursement process by giving employees a way to pay for their travel-related expenses with company funds.
Travel expense reimbursement tax rules
Businesses each have their own expense policies. These policies outline what are eligible expense types, amounts, documentation requirements, and processes for requesting reimbursement.
But the IRS has their own rules for claiming reimbursed travel expenses on a tax return. There are three rules to keep in mind.
Travel must be outside of the business’s “tax home”
The tax home is the entire city or general area of the main place of business, employment, or place of work.
To qualify as being business travel, the destination must be outside of the business’s tax home. A meeting across town wouldn’t qualify, but a destination in another city or state would.
This can be complicated when it comes to employees who work remotely. In this case, where the employee is permanently stationed becomes the tax home.
If a business sends a remote employee to a work-related event in their tax home, their travel expenses are not eligible for reimbursement or tax deductible.
The expenses must be eligible for tax deductions
Simply put, an expense must be tax deductible to be reported on a tax return. This means the expenses must be in a tax deductible expense category and meet the IRS’s standards.
More specifically, the IRS requires that tax deductible expenses must be ordinary and necessary.
Ordinary expenses are widely accepted expenses within the business’s industry. The necessary condition means the expense contributes to revenue or value generation for the business.
This is why the business purpose must be recorded by the employee. It’s the business’s responsibility to prove an expense meets these conditions in the case of an audit.
Travel reimbursements must have supporting documentation and records
All business expenses benefit from supporting documents, and this is especially true for reimbursed travel expenses.
Every reimbursed expense needs some sort of supporting documentation and description of the business purpose. Supporting documentation include receipts, travel logs, and bank or credit card statements.
Filed travel expense reports should be kept in a safe place, whether it be physically or digitally. They should be easily accessible for quick reference if needed.
Common challenges of travel expense reimbursement
Travel expense reimbursement can present several common challenges for both employees and employers.
Receipt management
One major issue is the complexity of managing receipts—employees often struggle to submit the necessary documentation in a timely manner. Either employees fail to get paid back and become disgruntled, or employers spend countless hours chasing down the documentation they need. Neither one is a great outcome.
Reimbursement delays
Delays in reimbursement can also lead to dissatisfaction among staff, especially if they've incurred significant out-of-pocket expenses during business trips. If an employee misses the monthly reimbursement window, they may have to wait another month to get paid back, long after their personal credit card bill comes due.
Tax and accounting compliance
Ensuring compliance with tax regulations and accounting standards adds another layer of complexity, making it important for organizations to code expenses correctly. This leaves back-office staff poring over receipts and checking submitted categories manually to make sure expenses are entered correctly in the company's accounting software.
Travel expense reimbursement best practices
To streamline the reimbursement process and alleviate common challenges, consider implementing these best practices:
- Set clear policies: Develop and communicate clear guidelines on what expenses are reimbursable to avoid confusion.
- Educate employees: Provide training on expense policies and documentation requirements to minimize errors.
- Simplify processes: Simplify the reimbursement process by minimizing approval layers and allowing digital submissions.
- Use technology: Leverage expense management tools like BILL Spend & Expense for real-time tracking and streamlined approvals.
Streamline travel expense reimbursement with BILL Spend & Expense
BILL Spend & Expense makes expense management easier by streamlining—or even eliminating—travel-related reimbursements.
- Approve and pay reimbursements: Get notified in the app when an employee has requested reimbursement. Review the request right in the app. If it's approved, send an automatic reimbursement straight to the employee's account via ACH.
- Apply controls: Add automatic rules to help make sure employees have included categories and receipts to their reimbursement requests, so you know you have the documentation you need.
- Company card: Because BILL Spend & Expense is free-to-use software that comes with the BILL Divvy Card¹, you have the option of giving your employees cards with automatic limits. So you can ditch the reimbursements and gain even more control over your budgets, booking travel through TravelPerk—for exclusive rates, real-time data, and exceptional travel rewards.
See how BILL Spend & Expense can help you streamline (or eliminate) reimbursements while boosting budget control, cost savings, and travel perks.
From our customers
“It’s the accountability of the card holders. That’s the biggest advantage of BILL Spend & Expense, the instant access to budgets that fosters accountability.” — Stevens Trucking
"I think BILL Spend & Expense is the best expense tracking system I have ever used. It makes assigning spend to categories fun (if you can believe it!) and easy. I've used a few very tedious systems in my past and it took hours to finish an expense report. I would dread the deadline every time. But with BILL Spend & Expense, the way it prompts you to categorize as you go and take a quick photo of a receipt allows you to complete your expense report on the fly." — Vermont Flannel
1The BILL Divvy Card may be issued by one of Divvy Pay, LLC’s bank partners. The BILL Divvy Card is not a deposit product. For your specific lender, see your Card Agreement.
