Managing employee expenses is more than just keeping receipts in check. It’s about fostering a clear, transparent process and ensuring employees are reimbursed fairly and on time. It is reasonable for employees to want to avoid spending their own money on work-related costs.   To ensure that you only reimburse employees for their reasonable expenses and avoid leaving this open to (mis)interpretation, be clear on what you consider is ‘reasonable’.

Standard employee costs: what should be expensed?

The types of expense that employers will reimburse varies between different workplaces. It will depend on the nature and size of the business and how deep their pockets are. However, these generally include the cost of:

  • Travel (for meetings or training, for example). This could include various forms of transport such as car, bus, or train. If the employee uses their own car, then it would be reasonable to reimburse the mileage.
  • Other associated travel costs (for example, accommodation, and food and drinks).
  • Client entertainment.
  • Attending an external training course.
  • Membership of a professional body (e.g., the CIPD for HR professionals).
  • Business telephone calls if employees need to use their private mobile or landline.
  • Using their own personal device for work (including computer equipment, laptop, or smart phone).
  • Work uniforms (for example, chefs, chauffeurs, construction workers’ hard-hats and boots).

However, employers with more financial flexibility could also consider reimbursing, for example, the cost of:

  • The employee’s usual commute to the office — particularly if it is outside the employee’s normal working hours.
  • Socialising with work colleagues (for example, after-work drinks).
  • Health and wellness subscriptions (gym membership, mental health apps, etc).
  • Non-essential work equipment such as stand-up desks or luxury chairs.
  • Home-working — despite the rise of hybrid working, there is (as yet) no clear legal obligation on employers to reimburse expenses which are specifically incurred due to working from home. The exception is where there is no office, in which case the employer should cover the cost of any equipment needed to enable the employee to do their job. Such costs (telephone, broadband, heating, lighting, water, or additional insurance costs, etc) are generally left to the employer’s discretion.

Beware of fraud

Avoid being taken advantage of. Although you may want to trust your employees, be aware that expense fraud is more common than you may think. The Association of Certified Fraud Examiners found in 2018 that it accounts for 21% of fraud in small and 11% in large businesses, and is unfortunately on the increase due to the cost-of-living crisis.

Not only is this a big drain on an employer’s financial resources, it can also put the them in difficulty with HMRC if it has relied on a tax exemption (see above) in respect of the fraudulent claim.

According to the ACFE, there are four types of expense report fraud:

  • Mischaracterised expenses: an employee claims a personal expense as a business expense.
  • Overstated (or inflated) expenses: an employee makes a genuine expense claim but inflates the amount.
  • Fictitious expenses: an employee reports an untrue expense and/or fake receipts for reimbursement.
  • Multiple reimbursements: an employee knowingly submits the same expenses and receipts for reimbursement more than once.

Top tips for avoiding such fraud are to make sure you obtain evidence of every purchase (and check for fakes) and audit your expenses processes regularly to ensure you have proof for each claim submitted of how and why the money was spent.

Take action

False expense claims can amount to:

  • Serious or gross misconduct (depending on the severity of the fraud or the wording of your disciplinary policy).
  • Breach of contract.
  • Breach of fiduciary duty if the employee is sufficiently senior — a director, manager, partner, say — to act in the best interest of the company or not to make a secret profit.
  • Theft for which criminal charges are appropriate, particularly where the fraud is on a large scale.

All of these allegations should be dealt with under your disciplinary procedure.

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