When an employee pays for something on the behalf of the business out of pocket, paying them back isn’t as easy as taking it out of the cash drawer.
The standards of accounting and tax reporting require every transaction to be proven and supported with documentation. In the case of an audit, a note saying you paid someone back on some day for some expense isn’t going to cut it.
What will cut it is a reimbursement receipt. Here, we’ll cover what that is, what information needs to be captured, and how you can stay tax compliant while paying your employees back for any expenses they incur.
What is a reimbursement receipt?
A reimbursement receipt is a supporting document an employee provides when they cover a business expense out of pocket. It shows what was purchased, when it was purchased, where it was purchased from, and how much money was paid.
Reimbursement receipts are an essential part of a business’s expense reimbursement process and reporting. They are supporting documents that “prove” expenses occurred—a necessary part of tax accounting and an audit process.
A part of a business’s reimbursement policy should outline what are considered acceptable documents that can be provided as a reimbursement receipt. Examples of reimbursement receipts include paper receipts, e-receipts, and paid invoices.
In lieu of one document being provided as a reimbursement receipt, multiple supporting documents can be provided. For example, a purchase order paired with a credit card statement showing the purchase amount could be used instead of one document.
When is a receipt required for reimbursement?
If an employee covers an expense out of pocket and wants to be compensated, they need a reimbursement receipt. No matter what the expense is or for what amount, a reimbursement receipt must be provided to verify the expense.
The IRS outlines that expense reports and reimbursement receipts must be submitted to the employer no later than 60 days after incurring the expense if the reimbursements are to be compliant with an accountable plan—a way of reimbursing expenses that is not treated as taxable compensation.
Your reimbursement policy may request receipts and expense reports be provided sooner. But all documentation should be collected within 60 days of the expense being incurred.
What information should reimbursement receipts contain?
A reimbursement receipt should contain the following information:
- Date of transaction
- Transaction amount
- An itemized breakdown of what was purchased
- Vendor’s name
- Any associated purchase order or invoice details
- Payment method
The reimbursement receipt should always provide an itemized breakdown of what was purchased to verify the expense type. This also allows you to check the expenses against the reimbursement policy to ensure it’s permitted and categorize the expense.
Some transactions may need to be broken up into multiple expense categories, like someone buying a software license and office supplies on the same purchase.
Your reimbursement policy may request additional information if it supports your recordkeeping. However, the above information should be included for tax purposes.
What expenses require receipt reimbursement?
Expenses of all types that are submitted for reimbursement require a reimbursement receipt. Regardless of what the expense type is, it should be supported with a reimbursement receipt.
What’s permissible as a reimbursable expense depends on the business’s reimbursement policy.
Some common examples of reimbursable expenses are:
- Expenses accrued while traveling such as airfare, lodging, cab fare, or transit costs.
- Business meals purchased while in the field
- Top-ups of office supplies like pens, paper, or staples
- Office equipment for at-home work like laptops or printers
- Costs of team building events
- Costs associated with business use of a personal vehicle
Remember that the IRS requires all purchases (not just reimbursements) of $75 or greater to be supported with a receipt. Receipts must be provided for all reimbursed expenses, however, if the expense is over $75 and the receipt does not have an itemized breakdown of what was purchased, it must be supplemented with an expense report.
Why should businesses require reimbursement receipts?
Businesses should require reimbursement receipts to keep tax compliant. Properly documenting reimbursed expenses is necessary as part of tax filing and as a precaution if the business were to be audited.
But beyond being necessary, reimbursement receipts have multiple benefits.
Reimbursement receipts keep employees accountable and prevent any chances of fraud. If supporting documents are required as part of the reimbursement process, it’s less likely that someone will try to make a fraudulent claim.
Over time, you’ll start to understand how effective your policy is at policing reimbursed expenses. Each receipt is an opportunity to see if there’s some ambiguity in the policy that leads to wrongful expense reimbursement requests.
If someone is regularly submitting reimbursement receipts for non-reimbursable expenses, it’s worthwhile to sit down with them and understand where the misunderstanding is coming from.
Challenges with reimbursement receipts
Getting reimbursement receipts isn’t as easy as simply requesting them. There are challenges to the process that you’ll have to navigate around.
Damaged or lost receipts
Paper receipts are easily misplaced and can become illegible over time. Unless the employee is provided with a digital receipt, there is a risk that this essential supporting document can’t be supplied.
To combat this, have employees take photos of receipts as soon as they get them. The images can be uploaded into a shared drive for easy access or attached to a digital expense report.
Make sure your employees are trained on what needs to be included in the photo. Regardless of whether it’s a digital receipt, physical receipt, or photo of a receipt, all the same information needs to be provided.
Providing documents with insufficient information
Some documents employees provide may not have all the information to verify the purchase. Maybe they show an invoice that isn’t marked as paid or a proof of payment slip without an itemized breakdown.
In these cases, additional supporting documents must be provided otherwise the expense can’t be verified.
Your reimbursement policy must outline what documentation needs to be provided to have an expense reimbursed. If the employee can’t provide the requested documentation, the expense can’t be reimbursed.
If this is a consistent pain point, it’s worthwhile to run a training session that outlines what’s needed as part of the reimbursement process.
Unmatched reimbursement receipts
Once a reimbursement receipt is collected, it’s up to the finance or accounting team to process the receipt and match it to a transaction on the books.
If this step is skipped, you could find yourself with a load of receipts that aren’t matched to expenses and no certainty on whether they’ve been processed or not.
It’s important to act fast using a consistent workflow when a reimbursement receipt is processed. Everyone should be on the same page on how reimbursement receipts are submitted, processed, and filed so there’s no possibility of a transaction slipping through.
How to improve the reimbursement receipt process
Reimbursement receipts can become a hassle that steals precious work hours from your employees and finance team. But if you follow these best practices, you’ll minimize the pain points and get consistent results.
1. Provide clear guidelines
Every business that reimburses expenses should have a clear and accessible reimbursement policy.
Draft up the reimbursement policy before reimbursing any expenses. When in doubt, look to a reimbursement policy template or follow our step-by-step guide.
Beyond the policy, have clear documentation on what types of documents are acceptable as part of the reimbursement process with examples.
2. Run training sessions
A brief training session that walks employees through the reimbursement process helps make your requirements crystal clear. Dedicate time to walk employees through the reimbursement process and the acceptable documents.
Consider recording the training session and keeping it in an accessible place. This will save you from having to rerun the training session with any new hires.
Take time to answer questions during the session. It’s also best practice to have a public log of any questions that follow the training session to make sure everyone has the same information.
3. Digitize the process
A process that depends on paper receipts has multiple possible points of failure. Digitizing parts of the process helps cut down on potential errors or missing documents.
From requesting digital scans or photos of receipts to online submission forms and mobile apps, there are multiple ways to cut down on the time between a transaction being completed and documents being submitted.
These digital solutions often come with automated checks that can streamline workflows. For example, they may check the expense type against your reimbursement policy to verify whether what was purchased was permissible.
The easier you make it for your employees to provide documents, the more likely it is they’ll actually provide what you need.
4. Use corporate cards
Want to make employee reimbursements a thing of the past? Another option is to use corporate credit cards.
Gone are the days of giving an employee a piece of plastic and hoping they only buy what was requested. With virtual credit cards (like Bill Spend & Expense cards), you can assign corporate cards to employees with cost controls that only authorize legitimate expenses.
For example, you could assign a virtual credit card to an employee going on a business trip with a limit of $1,000 that will only be authorized for transportation like Uber, cabs, or flights.
While receipt collection is still a necessary step in the process, you at least own part of the record keeping with the credit card history and you have peace of mind that only verified expenses are being approved. This saves you the time spent processing expense reports and verifying transactions.
How to streamline the reimbursement process
Make the reimbursement process easy for everyone with a platform that streamlines, automates, and optimizes the reimbursement workflow.
With BILL Spend & Expense, you get complete control over employee reimbursements while keeping all spending within budget. Every step from mobile receipt uploads to finalizing the review process and readying the payout is handled in one convenient platform. That means no more digging for receipts or manually reviewing transactions against your policy.
