Some people think of reimbursable expenses as those an employee incurs when purchasing either goods or services for the employer they work for. Others define reimbursable expenses as those the company incurs when performing work for a client such as postage, delivery fees, etc. And others bill out material and labor costs on a cost plus basis and call these charges reimbursable expenses.
When an employee travels for the company they expect to be reimbursed for the expenses of their travel, hotel and meals. A company should have in place a clearly defined policy of what will be covered and even more importantly what will not be covered. Some companies institute a per diem policy that sets a maximum cost to be reimbursed for food and other miscellaneous items. The employee will pay out of their own pocket for all expenses exceeding this per day rate. The per diem rate usually excludes travel charges such as plane or train fare, and hotel rooms but might expect the daily rate to cover such items such as taxi fare, tolls, etc. Room service and alcohol beverages are not usually covered unless a client is being treated to dinner as part of customer relations and the expense is acceptable and usual in your company. But in all cases, companies will require receipts for all expenses incurred with appropriate notes as to why and for whom the expense was incurred and expect those expenses to be reasonable to the purpose of the trip. If your company does not collect the necessary information and receipts these expenses will not be allowed to be taken on your tax return.
Employees who travel locally using their own vehicle may be reimbursed for mileage which usually covers not only gasoline, but also cost of insurance, and wear and tear. Tolls and parking are listed as expenses to be reimbursed over and beyond mileage expenses. Mileage rates are usually set using the current Internal Revenue Service rates which are reviewed and adjusted each year. Receipts are required for tolls and parking expenses and mileage logs stating the beginning mileage, the ending mileage and the client’s name and location and the purpose of the trip are required in order for the company to expense these items on their tax returns. The employee should submit copies of their logs to the company before being reimbursed for the expenses.
In some cases, a company might provide a monthly or yearly car allowance for their sales personnel or other employees that need a vehicle on a regular basis for work purposes. This does not eliminate the need for accurate records, however. Employees need to keep accurate mileage records and submit them to the company. Any allowance that exceed the actual expenses are considered personal expenses and are taxable to the employee and need to be added to the employee’s W2 at the end of the year. Check with your tax preparer if you have questions regarding when and how to report overpayments of reimbursable expenses.
Some professional organizations such as attorneys, accountants, data hk architects etc. do not include the cost of postage, copies, travel, telephone costs and other miscellaneous expenses in their billing rates. They bill these expenses when incurred to a client as reimbursable expenses. They are usually billed out at cost without additional mark-ups added. Also some companies that provide shipping of products to their clients bill out at a direct cost for the expense incurred, also defined as a reimbursable expense. However, more and more companies add a “handling charge” to the direct shipping cost which may or may not have any correlation to the actual cost of getting the product ready to ship, including packaging and labor and define this as a reimbursable cost as well.
Contractors, builders and other service type companies may offer a client a “cost plus” contract. The cost is the actual cost of the product or labor they are supplying. The “plus” is a mark-up agreed to by both the company and the client in the contract and is intended to cover overhead and profit margins. The company supplies copies of all material bills and labor expense records and with the billing to the client. Any exceptions to the estimate given with the contract is handled with change orders signed off by both the company and the client.
There are different ways to book reimbursable expenses and how you choose to handle them will depend on your company’s policies and perhaps on the type of expense you are reimbursing.
When reimbursing an employee’s expense report post the expense incurred as an expense when it is paid to the employee using the appropriate account for the type of expense. Note that meal reimbursement should always be booked in a separate Meal account as these expenses are treated differently on your tax return than other travel expenses. If meals are included in a general hotel bill, break out the meal expense from the room expenses.