Sometimes your employees may need to spend money on business-related costs. This could include travel and hotel costs, vehicle rental, or buying tea and coffee for the office.
Whatever they spend, you must reimburse their expenses when you’ve signed it off. Getting it wrong can leave you or your staff out of pocket, leading to potential pay issues.
In this article, we’ll explain what employment expenses are, as well as how to manage and reimburse them correctly.
What are employee expenses?
As a business owner, you will have different types of business expenses. From staff wages to office rentals, marketing, and taxes; you need to get on top of your outgoings.
You also need to be aware of employee expenses. These are when employees are required to make a work-related purchase out of their own pocket. This money can be claimed back from an employer, usually when they receive their monthly salary.
The following are common employee expenses:
- Any travel costs incurred for meetings or training. This could be fuel, vehicle rental, ticket fares or parking charges.
- Any overnight accommodation required.
- The cost of any meals or drinks whilst away.
- Any work-related subscriptions such as training programs.
- Any communal food or drink purchased for the office.
You need to make clear that employees must document anything they pay for and provide receipts for proof of purchase.
Can an employee claim home office expenses?
If you have salaried employees who work from home regularly, they may be able to claim for the following home office expenses:
- Utilities (electricity, heat, and water). Only if calculated correctly to claim for a reasonable amount.
- Monthly home internet.
- Home office maintenance and minor repair costs.
- Electronics used for working, for example phone, computer, laptop.
Only eligible employees can claim for home office work. More information on home office expenses can be found on the government website.
How should you start managing employee expenses?
You should have a clear and concise employee expense report policy. This policy should be included in the employee handbook and should be signed off as part of the onboarding process.
To avoid confusion, the policy should include what employees are able to claim for. For example, how to reimburse employees for any travel expenses. You must sign off any employment expense claim made before they can be reimbursed.
The use of an employee expense management system will allow you to keep track of any expenses logged, allowing you to accept or decline with ease.
You must also complete an employee business expenses form for any eligible employees.
What is an employee business expenses form?
As an employer, you must fill out a T2200 Declaration of Conditions of Employment Form. This form certifies an employees’ eligibility for certain deductions, such as any vehicle or fuel allowances.
You are under no obligation to file this form with your tax return, but it should be kept in case the Canada Revenue Agency asks to see it.
Are employee expenses reimbursements taxable?
Any expense reimbursements paid back to employees are taxable. It’s important you understand and input this correctly when filling out your employees’ T4 payslip.
Failure to do so could land you with heavy fines to pay. For more information on T4 payslip and employee business expense deductions, read our guide on payroll deductions.
Can you claim unreimbursed employee expenses
Unreimbursed employee business expenses are expenses in which the employee hasn’t been paid back for or been given an allowance on a business expense form.
The following are classified as unreimbursed employee expenses:
- Educating expenses.
- Business travel.
- Tools and supplies.
- Work clothes and uniforms.
For employees looking to claim these expenses back, they should file the correct form – after getting sign off. This should be filed with their personal tax return.
This emphasises the importance of your employees keeping their receipts for any business-related purchases made.
Get help with occupational health & safety today with BrightHR
Keeping on top of your outgoings is an extremely important part of any business, you need to manage your employee expenses correctly. Having an expense claiming policy, will keep your employee expense claims as smooth as possible.
BrightHR has a fantastic tool that can help you with your employee expenses. Our PoP Expense Tracker app allows you to accept or decline employee expenses with a swipe and get instant notification whenever an employee submit a new request.
Contact us on 18882204924 or book a demo today.