Business expense policy: Best practices & examples for success

Navigating company expenses can feel like an uphill battle. From tracking receipts to managing approvals, it’s no wonder so many businesses struggle to maintain order. This is where a comprehensive business expense policy comes into play. More than just a set of rules, a well-crafted expense policy brings structure, consistency, and clarity to how your company handles spending.

In this guide, we’ll walk you through everything you need to know about creating an effective expense policy. Whether you’re a finance manager monitoring fiscal responsibility or an HR director looking to smooth out operations, you’ll find best practices and actionable tips that will help streamline your process, reduce risks, and simplify compliance. Ready to take control of your company's spending? Let’s dive in.

What is an expense policy?

A company expense policy is a set of guidelines that outlines how employees can spend company funds for business-related activities. It serves as a framework for what constitutes acceptable spending, helping ensure that all expenses align with the company’s financial goals and legal obligations.

By defining which employee expenses are permissible and how they should be reported, an expense policy helps prevent overspending, fraud, and financial mismanagement.

What is a business expense?

Business expenses refer to any costs incurred by employees while performing tasks that benefit the company. These expenses can vary depending on the nature of the business, but typically include items that directly or indirectly support operations, growth, and productivity. An expense policy details how business costs should be managed, reimbursed, and recorded to maintain clarity and control over the company's finances.

Here are a few common examples of business expenses:

• Office supplies: Essential items such as stationery, computers, software, and other supplies that employees use in their day-to-day work. These may also include furniture and office equipment that supports productivity—like organizational tools or noise canceling headphones.
• Travel expenses: Costs associated with business travel, including transportation, accommodation, meals, and mileage. For example, if an employee travels to a conference or client meeting, these expenses would typically be covered by the company.
• Training and professional development: Fees for courses, certifications, seminars, or conferences that help employees grow in their roles or stay up-to-date with industry trends. Investing in employee development not only benefits the individual, but also the company.
• Client entertainment: Meals or events organized for business purposes, such as taking a client to lunch or hosting a company event. These expenses are typically limited by the company’s policy and subject to approval.

Why does your company need an expense policy?

A well-defined company expense policy isn’t just a formality; it’s an essential tool for managing finances and making sure that company resources are used properly and efficiently. Without a clear policy in place, companies risk financial waste, compliance issues, and even fraudulent activity. Implementing an expense policy can help businesses of all sizes maintain financial control, enhance transparency, and streamline their operations.

Here are a few key benefits of implementing a business expense policy:

Controls costs and manages budget

First and foremost, an expense policy keeps spending consistent with the company’s budget and financial goals.

By setting clear guidelines on acceptable expenses and spending limits, businesses can avoid unnecessary costs and better manage their cash flow. It also helps department heads and finance teams plan more effectively by knowing what expenses to anticipate.

Reduces risk of fraud and misuse

Having a policy in place minimizes the risk of employees misusing company funds. By clearly defining what qualifies as a business expense and implementing strict documentation and approval processes, businesses can safeguard themselves against fraudulent claims and unauthorized purchases.

Simplifies compliance and record-keeping

An expense policy also helps ensure that all financial transactions are properly documented and stored, which can go a long way in the event of an audit.

Your company expense policy standardizes how expenses are reported, making it easier for your finance team to track spending, categorize expenses, and meet legal requirements related to financial reporting and disclosure. If you use expense management software, it can also reduce the administrative burden of managing expense reports manually (more on that later in this article).

What to include in a business expense policy

When creating a business expense policy, include clear and comprehensive guidelines that cover all aspects of company spending—your goal is to not only help manage company expenses, but also ensure compliance, accountability, and consistency across the organization. There are plenty of expense policy templates you can access online, but it’s better to write your own policy, since it should be tailored to your company’s needs and goals.

With that in mind, consider including the key components listed below:

1. Company expenses and categories

Start by defining which expenses are considered business-related and therefore eligible for reimbursement. This could include:

• Travel expenses
• Office supplies
• Client meals
• Training program

Organize expenses into categories to help employees understand what types of costs are permissible; this helps avoid misunderstandings and aligns spending with your company’s goals.

2. Spending limits

To prevent excessive or unnecessary spending, set clear spending limits for different types of expenses.

Limits should be tailored to the company’s budget and vary depending on the expense category. You also may need to tailor them to different departments or seniority levels. For example, a company might allow a higher budget for travel and accommodation for senior sales executives, but restrict spending on entertainment or meals for software engineers. 

Setting limits in advance and including them in your expense policy manages expectations. When employees and company leadership are on the same page and everyone across the organization stays mindful of their financial responsibilities.

3. Required documentation

For accurate record-keeping and compliance, employees should be required to provide documentation, such as receipts, invoices, or expense reports, for all business expenses. Your expense policy should specify what types of documentation are acceptable—and include what details are required, like itemized receipts, travel itineraries, or digital copies of online purchases.

Documentation will help your company validate expenses so they can be properly reimbursed. It also minimizes the risk of fraud.

4. Approval process

Next, outline a clear approval workflow for reimbursable expenses. It should specify who is responsible for reviewing and approving different types of expenses, whether that’s department heads, managers, or the finance team. Additionally, the policy should clarify how employees can submit their expense reports and the time frame for approvals.

Having a transparent approval process prevents delays and disputes over employee expenses, while helping make sure spending stays in line with the company policy.

5. Reimbursement policy

Employees need to understand how and when they will be reimbursed for out-of-pocket expenses, so this section of the policy should explain the reimbursement process in detail, including submission deadlines, payment timelines, and how reimbursements will be processed (e.g., through payroll or direct deposit). The purpose of this section of the policy is to make sure employees are compensated fairly and promptly for their out-of-pocket business expenses, while keeping the company’s cash flow in check.

6. Consequences of non-compliance

Lastly, to maintain the integrity of the policy, it’s important to include a section on the consequences of non-compliance. These could range from verbal warnings to more serious actions, such as disciplinary measures, for repeated or deliberate violations. Outlining the consequences upfront encourages employees to follow the rules and assume responsibility for their spending.

Note that it’s always a good idea to have your legal counsel take a look at your policy, especially this section, before putting it into practice. Some consequences, like denying an employee’s reimbursement request, may not be legal under certain circumstances or in certain jurisdictions, so be sure to follow all relevant laws and legal advice.

How to create a business expense policy

When it’s time to actually create your business expense policy, keep in mind that careful planning and consideration are required to make sure it aligns with your company’s objectives and operational needs. A clear, well-defined policy sets expectations, streamlines processes, and helps avoid financial issues down the line.

Here are the key steps to developing an expense policy that works for your organization:

Step 1. Asses company needs and objectives

Before you even start drafting your policy, take time to assess your company’s specific needs and objectives.

Consider the size of your company, the nature of your industry, and your financial goals. Ask questions like:

• What types of expenses do employees typically incur?
• How can we control costs without restricting necessary spending?
• Who can approve reimbursements for employees? Are there certain limits or amounts that require approvals from different people or departments?

By aligning the policy with your company’s broader goals and objectives, you can create guidelines that promote fiscal responsibility while still supporting your business operations.

Step 2. Define expenses and categories

Once you’ve identified your company’s needs, define the types of expenses that are permissible and group them into categories. Common categories may include business travel, office supplies, entertainment, and training and development. 

Be as specific as possible to prevent any ambiguity. For example, under travel expenses, you could list transportation, meals, and accommodation. This helps employees understand what constitutes an allowable business expense and minimizes confusion over what’s covered.

Step 3. Establish documentation and submission requirements

To increase accountability and compliance, you’ll need to establish documentation requirements for all expense claims. This means specifying what kinds of receipts or records employees need to provide and how and where to submit them. 

Whether it’s a digital receipt for a meal, an invoice for office supplies, or an expense report for a business trip, clear guidelines will make it easier to track expenses and keep accurate records.

Step 4. Create an approval workflow

The approval process you create is the key to maintaining control over expenses. In your policy, outline the steps employees need to follow to get their expenses approved, including who is responsible for reviewing and approving each claim. Depending on your organization’s structure, this might involve department managers, finance teams, or HR.

By establishing a clear approval workflow, you ensure that expenses are reviewed promptly and that only authorized expenditures get reimbursed. You should also include timelines for submission and approval to keep the process as efficient as possible.

6 expense policy best practices

By following best practices, companies can simplify the expense process, improve compliance, and create a more efficient expense management process. Here are some best practices to consider when developing a company expense policy:

1. Keep the policy simple and easy to understand

One of the most important aspects of an expense policy is clarity. If the policy is too complex, employees may struggle to follow it correctly, leading to mistakes or non-compliance.

Use straightforward language, avoid jargon, and break down the policy into digestible sections. For example, instead of using technical finance terms, explain each rule in everyday language and provide real-life scenarios to demonstrate acceptable and non-acceptable expenses.

2. Make it easily accessible

Even the best expense policy won’t be effective if employees don’t have easy access to it. Make your policy readily available, whether through a company intranet, an employee handbook, or an expense management platform. For remote or field-based employees, consider providing access to the policy through a mobile app. Regularly remind employees where they can find the policy and encourage them to review it when submitting expenses. Accessibility is key to making sure employees consistently follow your policy.

3. Automate business expense tracking

Manually tracking business expenses can be time-consuming and error-prone. Automating the tracking process helps reduce the administrative burden on your HR and finance teams and free up more of their time for strategic, value-adding work.

Look for an expense management tool that automatically categorizes expenses, monitors spending limits, notifies stakeholders of noncompliance, and other features that streamline expense tracking and management.

4. Implement an expense management software

Automation isn’t the only perk that expense management software provides. In the digital age, relying solely on manual processes can slow down operations and lead to inefficiencies. Implementing an expense management software allows companies to streamline the entire process—from submission to approval to reimbursement.

A tool like Rippling can not only automate expense tracking but also integrate with your accounting system for more seamless financial management—plus, Rippling unifies Spend tools with HR, payroll, and IT so you can manage (and automate) every part of your business in one place.

5. Ensure timely reimbursements

Timely reimbursements are critical to maintaining employee trust and satisfaction. Delays in reimbursing out-of-pocket expenses can create frustration and financial strain for employees. To avoid this, set clear timelines for when expenses must be submitted and when reimbursements will be processed.

For example, require employees to submit expenses within 30 days of incurring them, and commit to processing reimbursements within 15 business days. 

6. Regularly review and update the policy

Lastly, your expense policy should evolve along with your company. Regularly review the policy to make sure it stays relevant to your current needs, industry standards, and regulatory requirements. For example, if your company expands internationally, you may need to revise the travel and reimbursement guidelines to accommodate different currencies or local regulations.

Regular updates help prevent gaps or outdated practices that could lead to compliance issues or confusion among employees. Keep lines of communication open and encourage feedback from employees, too.

Automate your expense policy with Rippling

Rippling consolidates all of your company’s finances—from payroll and benefits to corporate cards and expense management–giving you an up-to-date view of cash flow across your company and offering unprecedented control over spending patterns. 

While most expense management solutions only allow for basic employee-manager approval chains, with Rippling expense management’s advanced policy engine, you can set hyper-custom policies based on the vendor, dollar amount, and expense category, helping you block out-of-policy expenses with ease. You can also tee up automated workflows that help you control spend, like triggering an alert when a department’s expenses sharply increase. 

With Rippling you can: 

• Automatically route expenses and bills to the right approver every time. 
• Flag out-of-policy spending with hyper-custom policies, like by vendor or value, for further review. 
• Close the books faster with AI-powered transaction categorization, and integration with your accounting systems.

Frequently asked questions

What makes a good expense policy?

A good expense policy is clear, concise, and easy to follow. It should outline acceptable business expenses, set clear spending limits, define documentation requirements, and provide a straightforward approval process. It should also balance cost control with flexibility so employees understand the rules without feeling overly restricted. And employers should regularly update the policy to reflect changes in company goals, industry standards, or legal requirements.

What is an expense incurred policy?

An expense incurred policy outlines how and when employees can claim reimbursement for costs they’ve paid out of pocket while conducting business activities. This type of policy typically covers expenses like travel, meals, and office supplies. It should cover requirements for submitting receipts or other documentation to prove the expenditure, so all incurred expenses are properly tracked, reported, and reimbursed in a timely and transparent manner.

What is a T&E expense policy?

A Travel & Entertainment (T&E) expense policy is a set of guidelines governing how employees can spend company funds on travel and entertainment activities related to business. This policy includes rules for airfare, lodging, meals, client entertainment, and transportation, as well as the maximum spending limits for each category. A T&E policy helps control costs while giving employees the flexibility to conduct necessary business-related travel or client meetings.

Can I create custom expense policies with Rippling?

Yes! With Rippling, you can define specific spending categories, set hyper-custom policies based on the vendor, dollar amount, and expense category, and automate the submission and reimbursement process. This level of customization ensures that your expense policy aligns with your company’s financial goals, while also offering flexibility for different departments or teams.

Where can I find an expense policy example?

You can find examples of expense policies in various online resources, including many business publications. Websites like SHRM (Society for Human Resource Management) provide expense reimbursement policy templates to help you get started. These examples can serve as a guide when drafting your own policy.

This blog is based on information available to Rippling as of September 19, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.