How to manage employee expense reimbursement

Sometimes employees need to spend their own money to do their jobs—whether it’s covering travel to a client meeting, staying in a hotel, renting a vehicle, or even buying coffee for the office.

As an employer, it’s important to reimburse these costs accurately and promptly. Doing so keeps your team supported and prevents unnecessary out-of-pocket expenses or payroll complications.

In this guide, we’ll walk you through the different types of employee expenses, how to create your own reimbursement policy for employee expenses, and share practical tips for managing and reimbursing these expenses effectively.

Employee Expenses Explained

Employee expenses are costs that employees pay out of their own pocket to perform their job. These are typically reimbursed by the employer and must be properly documented, such as with receipts, to ensure compliance and accuracy.

Using an employee expense tracking software can make this process much easier, helping you monitor purchases, mileage, and other claims efficiently.

Common Employee Expenses

Employees may incur everyday costs necessary to do their jobs. Here are some examples of common, reasonable employee expenses that you would likely have to reimburse:

• Travel costs: Fuel, vehicle rentals, public transport tickets, parking fees

• Overnight accommodation: Hotels or other lodging required for work trips

• Meals and drinks: While traveling for business purposes

• Work-related subscriptions or training: Professional development programs, software, or memberships required for the job

• Office supplies or communal items: Stationery, coffee, tea, or snacks purchased for the office

Reasonable vs. unreasonable employee expenses

Not all expenses are automatically reimbursable. Employers should assess whether an expense is reasonable, meaning it is necessary, proportional, and directly related to the employee’s work.

When reviewing expenses, consider the purpose, industry norms, timing, and whether a more cost-effective option could have been chosen. Here are some examples of more difficult situations and how you may approach them:

• Meals while traveling locally: A $45 lunch during a half-day client visit may be reasonable

• Upgraded hotel rooms: Booking a suite instead of a standard room may be justified if no cheaper alternatives exist

• Business calls from personal devices: High-cost calls may be reimbursed proportionally, if documented properly

• ransportation upgrades: Taking a cab or rideshare instead of public transit due to time constraints may be justified

• Office equipment with limited personal use: Only the work-related portion is reimbursable

When Employee Reimbursements May Be Taxable

Most reimbursed employee expenses are non-taxable when they are directly incurred for work and supported by receipts. However, certain situations may trigger tax implications, such as flat allowances not tied to actual expenses, costs providing personal benefits, or mixed-use items reimbursed in full.

Best practice for employee expense reimbursement

To ensure that all appropriate expenses are reimbursed properly and fairly, Employers should:

• Create a reimbursement policy for employee expenses

• Ensure that policies are applied consistently and fairly

• Only reimburse expenses once documentation and approvals are obtained

• Set limits for meals, travel, and accommodation

• Be sure that mixed-use items are reimbursed only for the work-related portion

Reimbursement policy for employee expenses

A clear expense reimbursement policy ensures employees know what can be claimed, how to submit claims, and what documentation is required. It also helps protect your business and maintain accurate payroll and tax reporting.

This policy should be easily accessible to all employees, reviewed periodically for compliance with legal requirements, and training should be provided to employees and managers on submitting and reviewing expense claims.

At a minimum, your policy should cover:

Eligible expenses for reimbursement

Outline the types of costs employees can claim, such as travel, meals, accommodations, subscriptions, and office supplies, including any limits.

Approval process

Specify who approves claims, the submission steps, and expected timelines for reimbursement.

Documentation requirements

Require receipts or proof of purchase for all reimbursable expenses, and note any additional documentation for larger claims.

Mixed-use and partial reimbursements

Explain how partially personal costs (e.g., home utilities, cell phone) will be reimbursed, with only the work-related portion eligible.

Tax considerations

Clarify which expenses are non-taxable and which may have tax implications, and remind employees to keep CRA-compliant documentation.

Reimbursement timeline

State how quickly employees will be reimbursed after submitting a valid claim.

Compliance and enforcement

Ensure all reimbursements comply with company policy and CRA rules, and clarify consequences for incorrect or fraudulent claims.

Commonly confused employee expenses

There are some expenses that employees may mistakenly try to claim—but typically won’t be covered under your expense reimbursement policy. If you have a clear policy in place, this can help you reduce confusion, while clearly enforcing which expenses can or can’t be reimbursed.

The decision for these are at the discretion of the employer, but should be fairly and evenly applied across their workforce.

Commonly mistaken expenses include:

Commute

Some employees mistakenly believe that their commute can be expensed, but this is typically not the case, and should be clearly stated that it is not covered by your policy.

Work outings (work event vs non work event)

Ensure to clarify whether social activities are work events or not. If the workplace is organizing an event, be sure to clarify whether any expenses will be covered.

Office supplies

If an employee purchases stationary, coffee or general supplies for the office, ensure to clarify whether this would be reimbursed under your policy. If they are non-work essential, they are unlikely to be covered—but you could choose to cover these.

Certifications

If a certification is mandatory to work in an industry, employers typically would not cover the incurred expenses for employees, but could choose to do so.

If it is required by an employer for their workplace specifically, they would be more likely to reimburse any expenses—but the decision is yours to make.

Employee expenses vs employment expenses

Employment expenses are costs employees may deduct on their personal tax return if they are required for work, not reimbursed, and certified with a T2200 form. These tend to be less frequent but more formal than everyday employee expenses.

Common examples include:

• Home office costs (utilities, internet, supplies)

• Vehicle expenses for business travel

• Work-related supplies

• Required clothing or uniforms not provided by the employer

Fully reimbursed expenses cannot be claimed; partially reimbursed expenses may only be claimed for the unreimbursed portion.

Mixed-use expenses (e.g., home utilities or office equipment) can only be claimed for the portion used for work. Costs must be reasonable, and receipts should be kept.

Simplify Employee Expense Management with BrightHR

Managing employee expense reimbursement is key to keeping your team supported and your business running smoothly. A clear expense policy helps ensure claims are handled quickly and fairly.

BrightHR’s employee expense tracker makes it simple. Approve or decline expenses with a swipe and receive instant notifications whenever a new request is submitted.

Get started today and book a free demo to see how BrightHR can streamline your employee expense reimbursement process.