Preface: Every business should have a travel policy for expense reimbursements, if employees travel. This blog is written to bring to light the importance of a travel policy to manage travel reimbursement expectations.
Should Your Business Write an Accountable Travel Policy
Businesses with employees who travel periodically should have an accountable travel plan policy for employee reimbursements for those travel expenses. A well-developed policy sets guidelines for qualified and nonqualified travel expense reimbursements. A well designed travel policy also develops expectations beforehand on qualifying travel costs.
A travel policy can help reduce costs, and produce supporting receipts for tax deductions for employee expenses incurred during travel. For instance say an employee needs to fly to meet with a potential distributor or dealer. Planning your travel policy guidelines will limit certain employee expenses incurred during the travel. A travel policy doesn’t necessarily require restrictions on travel expenses; yet it should be designed to set expectations on what is and is not a qualifying travel expense. Qualifying travel expenses can include airfare, lodging, meals, vehicle rental, phone, taxi, tips, concierge, etc. If your employees understand before traveling, what will be a qualified travel expense, you can control costs, and keep expenses contained?
A corporate credit card for traveling employees, will help accurately track costs, and provide cost saving travel discounts in some instances. A travel policy can set permitted airline carriers, or similar frequent travel reward programs for say meals, car rentals, lodging, etc.
An accountable travel plan according to IRS code has three rules for compliance. i) your expenses must have a business connection, e.g. you cannot visit town and enjoy an afternoon at museums or historic venues and expense your entry passes, if it has no business connection, ii) You must adequately account to your employer the expenses within a reasonable period of time (within 30 days of receipt all expenses must be submitted), iii) you must return any excess reimbursements or allowances within a reasonable period of time (say 120 days). For employees who meet the accountable plan rules, all qualifying expense reimbursements will not be taxable to the employee. For employees who neglect the rule, the expense(s) must be included on box 1 of Form W-2 and taxed as wages.
Developing an accountable travel plan can help your employees shop astutely when purchasing airline tickets, rail passes, or lodging. For instance you can set a standard lodging reimbursement formula. If lodging rates vary from $135 to $350, on average, for the districts your employees travel, a week of well-planned travel costs can easily vary $150. Setting expectations on these costs can keep help keep travel expenses contained, e.g. a passport is not a business expense, but what about say car rental insurance? Airline tickets can also be a cost variance. Will your employees be permitted to use business class or required to travel coach? Your travel policy can set these guidelines. Your travel policy can also clearly communicate the need for submission of all receipts for reimbursed travel expenses; more than an email that’s say “I paid travel expenses of $2,711”
The IRS permits a per diem travel policy that pays a set balance for say per day of travel. Per Diem policies require payments be only for expense(s) necessary to business travel with a documented time, place and business purpose.
Summary: A well designed policy develops expectations beforehand on qualified travel costs for employees. A well-designed travel policy doesn’t necessarily require restrictions on travel expenses; it should simply be designed to set expectations on what is and is not a qualifying reimbursable travel expense for employees. If you have employees who travel, or if employees may travel in for business in the future, take the time to develop a business travel policy.