Managing employee expenses

One of the biggest headaches for small business owners is the problem of employee expenses. SmallBusiness.co.uk offers some top tips to managing them.

By Rich Wagner, CEO of Cashplus

One of the biggest headaches for small business owners is the problem of employee expenses. Cautious employers are right not to hand out company credit cards with revolving credit limits for their staff to take liberties with, but employees are also within their rights to claim promptly for legitimate company expenses.

Expenses are an emotive issue – and the fudge usually ends up being disgruntled employees having to pay company costs out of their own pocket and claiming back their expenses at the end of the month. This is not only time-consuming, but also difficult for the employee and employer to manage and potentially damaging for the working relationship. In addition, business owners have no idea how much employees are spending until they receive those unexpected nasty surprises on the end of month expenses forms!

Top tips for managing employee expenses

  • Communicate your expenses policy clearly and simply, and remind employees about it regularly. Employees need to know what they can claim, when and how. Try to keep bureaucracy to a minimum and encourage employees to ask questions!
  • Enable your employees with their own expenses card. Give responsibility to the team, from junior members through to managers and encourage them to budget accordingly and take ownership of financial matters.
  • Reduce the need for forms, receipts and paperwork by making sure your employees know about the limits on the card and the agreed areas of expenditure. Stick to a clear policy and tell your employees if it changes.
  • Think about fuel and business entertaining as potentially high-risk areas – make sure card users know whether they can spend on fuel and food/drink (especially alcohol) or whether these areas are off limits. You can even block certain type of purchases if they are not permissible under your policy for extra control and risk management.
  • Make sure your employees know you or your finance director is monitoring the different card accounts regularly to prevent potential abuse of the system.

Also see: Three ways small businesses can take control of their cash flow

SMEs ignorant of expenses

One in five small businesses don’t know how much money they pay out in expenses every month, research finds.

According to a study of 400 SME owners by opinionmatters.co.uk, almost 40 per cent admit that only their accountant knows how much is expensed to the business on a monthly basis.

A further third (32 percent) say they ‘only have a rough idea’ of the amount they are paying back to employees.

While more than half (58.2) percent of public sector employees indicate they would never consider submitting a false claim, only 12.2 percent  say they have never done it because they knew they wouldn’t get away with it.

Isabel Montesdeoca, vice president of technology company Concur says that SMEs shouldn’t rely solely on their accountant, as they typically only have a limited amount of insight into the business itself.

‘Increased transparency of expenses allows businesses to put automatic regulations into place depending on their policies, spot trends in claims and keep taxes in order,’ she adds.

Lax expense claims procedures bad for business

Having too relaxed an expense claim system can be detrimental to both a business’s finances and to its reputation, according to the Federation of Small Businesses (FSB).

Spokesperson for the FSB Stephen Alambritis says that false expense claims can cost significant amounts of money that could have been invested back into the business.

In addition, companies’ reputations can be affected by losses incurred in this way.

‘If word gets out that a particular business has lax procedures for expenses that can get through to investors and bank managers,’ he continues.

Firms need to ensure they have a ‘thorough and rigorous’ expense procedure throughout the company. Otherwise the relationship of trust between employer and employee can be lost and other employees may feel resentful at dishonest workers’ behaviour, he adds.

Research by Travelodge has found that employees claim over one billion pounds in spurious expense claims each year.

The most common fake expenses were obtaining extra taxi receipts to make false claims, adding extra mileage, and using a cheap restaurant for entertaining clients then going to an expensive one and submitting that as the receipt for the client meal.

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