Whether it’s meeting with clients, attending conferences, visiting other company locations, or networking with new prospects, corporate travel is an essential part of today’s global business environment, one that comes with significant benefits—and significant costs.
When your employees travel for business, your company must reimburse them for all work-related expenses that are incurred during their travels. But how do you manage all these expenses and keep a handle on costs? Having a policy that clearly defines your business travel expense guidelines offers several benefits for both your company and your employees:
- For employees, it sets clear expectations and guidelines on what business trip expenses are allowable, reducing confusion and enhancing transparency.
- For employers, it provides a clear framework for managing employee travel costs and helps maintain consistency and compliance with tax regulations so you can control costs and reduce the risk of fraudulent claims.
A well-defined policy can also promote a fair work environment, as all employees are subject to the same rules and reimbursement rates.
In this article, we explain how your company can benefit from a business travel expense policy. After reading it, you’ll have a clear understanding of what business travel expenses are, how to document business travel expenses, and the travel and expense policy best practices that can help you create a policy that works for everyone.
What are business travel expenses?
Business travel expenses are the costs an employee incurs for business purposes while traveling for work. Expense categories include:
- Transportation costs, such as airfare, train tickets, car rentals, public transportation, ground transportation, and mileage for personal vehicles used for business purposes
- Lodging expenses for hotel rooms or other accommodations
- Meals consumed during business travel
- Incidental expenses directly related to business activities, such as tips, dry cleaning, parking fees, tolls, and business-related phone calls
Employees may pay for these expenses out of pocket or they may charge them to a corporate or virtual credit card.
What is the IRS travel policy?
Under Internal Revenue Service (IRS) rules, companies can deduct certain business travel expenses, which reduces taxable income and lowers your company’s tax liability. However, to claim these deductions, travel must meet certain requirements.
If you’re unsure how to qualify a trip as a business expense, the IRS has established specific guidelines that define deductible business travel expenses. According to the IRS, for travel expenses to be deductible:
- The travel must be away from the taxpayer’s tax home: This generally means travel that requires an overnight stay.
- The primary purpose of the travel must be business-related: If personal travel is mixed with business travel, only the business-related expenditures are deductible.
- Expenses must be ordinary and necessary to the business and not lavish or extravagant: An expense is considered ordinary if it is common and accepted in your trade or business and necessary if it is helpful and appropriate for your business.
- There must be a substantiation of expenses: Accurate records and receipts are required for all expenses.
How to calculate business travel expenses
Calculating business travel expenses involves tracking and documenting all costs incurred during a trip, including transportation, accommodation, meals, and incidentals.
Receipts and records of all expenditures should be organized and categorized according to your company policy. Expense management software can help with itemizing and totaling these costs so nothing is overlooked.
This process is important because it helps to manage travel budgets, facilitates accurate reimbursement for employees, and provides financial accountability. It also provides your travel management team with valuable data to identify potential cost-saving opportunities.
Teach employees how to document business travel expenses
Thorough documentation of business travel expenses is crucial for accurate reimbursement, budget tracking, and staying compliant with company policies and tax regulations. Employees should collect and save all original receipts for expenses and categorize them as they go, either by organizing them in separate envelopes or by using a mobile app designed for expense tracking. Additionally, they should keep copies of any travel itineraries, tickets, or confirmation emails as supporting documents.
How to create a comprehensive business travel expense policy
By following these best practices, businesses can craft a policy that promotes transparency, efficiency, and compliance and supports your organization’s financial and operational goals:
- Define clear objectives: Establish the purpose of the policy, such as cost control, compliance with tax regulations, and support for business travel needs.
- Specify covered expenses: Clearly outline what expenditures are covered, such as transportation, lodging, meals, and incidental costs. Include examples and any specific limitations, such as meal per diem rates, caps on hotel costs and entertainment expenses, and under what conditions upgrades to business class or first class service are allowable.
- Set expense reimbursement guidelines: Define the process for submitting and reimbursing expenses, including required documentation, such as original receipts and itineraries, timelines for submission, and approval procedures.
- Provide per diem rates: Consider offering per diem rates for business meals and incidental expenses, which can simplify expense tracking and keep your company compliant with IRS guidelines. Should we include a link to this recent article?
- Include travel booking procedures: Specify preferred booking tools and platforms, preferred vendors, and guidelines for making travel arrangements, such as advance booking requirements and class of service for flights.
- Address compliance and ethics: Emphasize the importance of compliance with the policy and ethical behavior in reporting employee expenses, and outline the consequences for non-compliance or fraudulent claims.
- Communicate the policy: Make sure the policy is easily accessible and communicated to all employees. Provide training sessions or resources to help employees understand the policy and their responsibilities.
- Review and update regularly: Periodically review and update the policy to reflect changes in business needs, tax laws, or industry standards. Solicit feedback from employees to identify areas for improvement.
Sample Travel Expense Policy
A comprehensive travel expense policy should do more than simply outline the types of expenses that are reimbursable. It should also clearly spell out your travel expense policy and procedures, with well-defined guidelines for employees to follow. This travel expense policy example includes the key information that should be included in your policy:
XYZ Corporation Travel Expense Policy
Purpose: To provide guidelines for employees traveling on company business and maintain compliance with IRS regulations.
Scope: This policy applies to all employees of XYZ Corporation.
Policy:
- Transportation: Employees are expected to choose the most cost-effective means of transportation. Air travel should be booked in economy class, and personal vehicle use will be reimbursed at the current IRS mileage rate.
- Lodging: Hotel accommodations should be reasonably priced, and employees should seek corporate or discounted rates when available.
- Meals and incidental expenses: Employees will be reimbursed for actual meal expenses up to the daily per diem rate for the travel location. Incidental expenses, such as tips, tolls, and parking fees, are also covered up to the per diem limit.
- Reimbursement request documentation and reporting: Employees must submit an expense report within 30 days of the trip’s completion. The report must include all original receipts and a detailed description of each expense’s business purpose.
- Non-Reimbursable Expenses: Personal expenses, such as entertainment, alcohol, airline ticket upgrades, and luxury services, or commuting costs are not reimbursable.
Approval: All travel expenses must be approved by the employee’s manager and the finance department.
Compliance: Employees are responsible for understanding and adhering to this policy. Non-compliance may result in denial of reimbursement and potential disciplinary action.
A business travel expense policy is essential for managing travel costs, maintaining compliance with IRS regulations, and providing clear guidelines for employees. Unlock the benefits of a streamlined business travel expense policy—contact AMEX Global Business Travel today to learn how we can optimize your travel management.
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