How to write an expense policy employees can follow

Short answer: write one page that says what the company pays for, up to how much, what proof it needs, how quickly to claim, and who approves. Make every rule specific enough that a person (or software) could check an expense against it without asking you. Then tell people what happens when something falls outside it.

Most small companies don't have an expense policy until a claim surprises someone. Then it's written in a hurry, full of "reasonable" and "where appropriate", and people still have to ask. Here's how to write one that answers the question before it's asked.

Start with what you'll pay for

List the categories people actually spend on: travel, lodging, meals, client entertainment, local transport, mileage, software, phone and internet, training. For each, one line on what's covered. "Economy flights booked at least seven days ahead" is followable. "Reasonable travel costs" isn't.

Say what isn't covered too. Alcohol, upgrades, personal entertainment, fines and minibar charges are the usual ones. Saying it up front is kinder than rejecting a claim later.

Put a number on every limit

Vague limits create arguments; numbers create decisions. For each category that needs one, pick:

• A per-receipt limit for one-off spend: "Lodging up to $250 a night, taxes included."
• A daily allowance for spend that adds up: "Meals up to $75 a day when travelling."

Look at last year's claims before you pick numbers. A limit most people already stay under costs you nothing and catches the outliers. A limit set below what things cost will be broken every week, and people stop taking the policy seriously.

Say what proof you need

Decide when a receipt is required. Many companies ask for one above a small amount, with an explanation below it. Say what counts: an itemised receipt or invoice, not a card statement line. For mileage, the date, the route, the distance and the purpose.

If you reimburse in one currency but people spend in others, say how you convert: at a published reference rate for the date of the receipt, or at the rate on the employee's card statement. Either is fine. Picking one avoids a debate on every foreign receipt.

Set a deadline

"Submit within 60 days" keeps the books current and memories fresh. Old receipts are the ones most often missing details.

Make exceptions possible, and visible

No policy covers everything. Instead of forbidding exceptions, ask for an explanation: "Weekend expenses need a short business reason." The employee writes one line; the approver sees it next to the expense and decides. That's faster than a back-and-forth after the report is rejected.

Decide which rules are hard and which need an explanation. A missing receipt might need a note; alcohol might simply not be reimbursed. Write down which is which.

Say who approves

Name the steps: usually the person's manager, then finance for larger reports. Say what happens on rejection (the expenses come back to the employee) and when someone asks for changes (they fix the report and resubmit). Say that nobody approves their own claims.

Keep tax out of it

Your policy says what the company will reimburse. Whether an expense is deductible, or its tax reclaimable, is a different question with a different answer in every country. Leave it to your accountant, and keep the tax amount printed on each receipt so they can decide.

Make it checkable

The best test of a policy is whether each rule could be checked automatically: a category and a limit, a threshold for receipts, a day of the week, a word on a receipt, a number of days. If a rule can't be checked, it can't be applied the same way twice.

Tools like Recepta turn exactly these rules into checks (category limits, receipts required from an amount, weekend expenses, alcohol, daily allowances and an age limit), flagging each expense for a person to look at rather than deciding for them. Whatever you use, writing the rules this way makes them fair.

A one-page template

• Covered: travel (economy), lodging, meals when travelling, client entertainment with a named client, local transport, mileage at our rate, software and training agreed with your manager.
• Not covered: alcohol, upgrades, personal items, fines.
• Limits: lodging up to $250 a night; meals up to $75 a day when travelling; client entertainment up to $60 a person.
• Receipts: an itemised receipt for anything from $25. Below that, a short description.
• Currency: converted at the published reference rate for the receipt's date.
• Weekends: allowed with a short business reason.
• Deadline: submit within 60 days.
• Approval: your manager, then finance for reports over $1,000. Nobody approves their own report.
• Questions: ask finance before you spend, not after.

Adjust the numbers to your company, and review them once a year.