Instant Reimbursement: The Best Way to Reimburse Employees for Expenses

Navigating the complexities of employee expense reimbursement can be daunting for any organization, especially when managing business travel expense reimbursements and ensuring compliance with IRS regulations. 

The best way to reimburse employees for expenses hinges on a clear understanding of the types of expenses, adherence to an expense reimbursement policy, and leveraging modern expense management solutions.

Employees who travel for business incur business-related expenses, from meal expenses and last-minute office supplies to airfare and hotel stays. Ensuring that a company reimburses employees for travel expenses in a timely and efficient manner is crucial — not only for maintaining morale and trust but also for compliance with the Fair Labor Standards Act and IRS guidelines. These dictate the treatment of reimbursements as taxable income or tax-deductible business expenditures.

An effective expense reimbursement plan should streamline reimbursement requests by making it simple for employees to report their work-related expenses. Whether purchasing gym memberships for remote work wellness or covering travel costs for a business trip, the process should be straightforward and transparent.

Today, instant expense reimbursement is achievable by adopting technology that can handle everything from expense tracking and reports to direct deposit repayments. As a result, out-of-pocket reimbursement delays for employees are minimized, and companies close the books faster.

The Employee Expense Reimbursement Headache

Navan surveyed 375 finance professionals in August 2023, and people in all types of finance roles — CFOs, controllers, and others — responded.

One trend became clear: If finance leaders could wish for just one thing, it would be getting as close as possible to instant reimbursement.

Navan asked these finance leaders, “If you had to select one of the following challenges to overcome with expense management, which would it be?” The responses:

• 30.4% Reducing process and workflow inefficiencies — improving time to close books
• 22.4% Improving the visibility of spend across the company
• 19.4% Controlling budgets and ongoing expenses
• 16.5% Reducing delays in expense report submissions
• 7.5% Managing out-of-policy spend
• 3.7% Driving down expense report processing costs

As companies focus more on efficiencies, it’s unsurprising to see process optimization as the most important goal.

To streamline the expense reimbursement process, businesses can turn to digital solutions that automate expense reports and reimbursement claims. These platforms significantly reduce the administrative burden on employees and finance teams and ensure that business travel expenses and other approved expenses are processed efficiently.

Furthermore, integrating these systems with card programs can facilitate instant repayments for expenditures like office supplies and employee benefits, and ensure employees stay within policy guardrails, whether that be complying with a hotel price cap or per-diem rate.

The Modern Way: End-to-End Automation

The traditional approach to expense management costs companies time and money. For example, processing an expense report for a one-night hotel stay takes 20 minutes and costs companies $58 on average, according to a GBTA study.

Because expense reports often had mistakes, missing information, or out-of-policy charges, it would take even longer for finance teams to track down accurate information and process the report. The employee might spend weeks waiting for reimbursement.

Today, there’s a better way: Technology exists to eliminate the entire expense reporting process.

Companies can set travel policies using travel and expense management software, so spend rules are automatically enforced at the point of sale. Expense reimbursement policies define covered costs, set limits, and outline the reimbursement process (including submitting expense reports and reimbursement requests). 

Examples of employee business expenses that need clear guidelines are: 

• Standard mileage rate for using a personal vehicle on a business trip
• Per-diem rates for travel expenses
• Commuting costs 

With the swipe of a card, policies are approved or rejected and transaction details are categorized and reconciled — completely eliminating the need to create reports.

A Note on the Importance of Regulations and Expense Management

Business owners and human resources departments must ensure their expense reimbursement process aligns with IRS requirements, particularly the distinctions between accountable and nonaccountable plans.

• Under an accountable plan, reimbursements are not taxable to the employee and are tax-deductible for the employer. This plan requires that expenses have a business purpose, are substantiated with receipts within a reasonable time, and that any excess reimbursement is returned to the employer. 
• Under a nonaccountable plan, reimbursements are treated as taxable income to the employee, subject to payroll taxes and income tax withholding.

For small businesses, managing these processes efficiently is even more critical. The right expense management tools can help streamline the approval and repayment of employee expenses. This ensures compliance with tax laws and the Fair Labor Standards Act, which mandates that reimbursements not dip an employee’s wage below the minimum wage.

Instant Expense Reimbursement with Navan Expense

Navan Expense provides a solution that transforms the expense management process and gives finance teams the time to focus on bigger-picture strategies and plans. 

Navan Expense does this by offering the following capabilities:

• Implement corporate cards: Corporate cards offer control and visibility that personal cards cannot. With Navan Connect, companies can keep their current cards, yet still reap the benefits of Navan’s expense management technology.
• Get real-time visibility: Proactively resolving potential issues requires up-to-the-minute visibility, which allows for better forecasting and strategizing. And Ava, Navan’s generative AI-powered data assistant, can discover insights into spend much faster than humans.
• Employ dynamic spend policy: Employees often don’t know the details of their policies, and rejecting spending after the fact is time-consuming and demoralizing. Preventing spend before it occurs saves time and money.
• Eliminate manual expense reports: Creating, submitting, approving, and reconciling traditional expense reports means everyone has to put time into busy work that no one is happy about.
• Automate reconciliation: Closing the books each month requires time and effort that accounting and finance teams can better use on more strategic tasks.
• Reduce fraud: Fraud may not be malicious; it could stem from employees not understanding the spend policy. And communicating that policy to employees can be more challenging with a distributed workforce.

The cornerstone of efficient expense reimbursement lies in adopting a comprehensive expense reimbursement policy, leveraging modern expense management solutions, and ensuring adherence to IRS regulations and tax benefits. 

By doing so, businesses can provide their employees with a seamless reimbursement experience by reinforcing trust and transparency while safeguarding against potential taxable liabilities and income tax implications.

Ready to streamline company spending and implement an all-in-one travel and expense management software solution? Schedule a demo to see how our spend solutions work, or get up and running with Navan in just 5 minutes.