When your employees are driving personal vehicles and using their own devices and other personal assets for work, reimbursement is essential. In many states, failure to accurately reimburse employees can expose companies to legal action. But reimbursement can pose a challenge to companies of all sizes. Does your company have an established employee reimbursement policy? Let’s dig into what an employee reimbursement policy entails, the pros and cons of in-house and outsourced reimbursement management and more.
An employee reimbursement policy is how a company compensates a worker for the business use of a personal asset. This policy can encompass a wide range of assets: vehicles, devices, home offices and internet. The policy will also outline qualifications for reimbursement. For example, the sales team may be enabled to use their personal devices for work, while employees in other departments do not have job roles that have the same device needs.
Companies can and will continue to reimburse their employees as they have for years. Many companies choose to manage their program in-house and use their own rates or gather averages. Other companies will opt to outsource their program to professionals with years of experience in allocating rates and managing the actual reimbursements. Which option is best? Ultimately, it depends on a number of factors: the size of your company and the stage it’s in. Let’s take a look.
With an in-house program, all reimbursements are processed within the company. That means no relying on outside vendors for data. If an issue arises, say a submitted mileage log is missing some key information, that can be handled internally. It also means the company isn’t spending money on outsourcing their program. Why pay to have another company do it if it can be done in-house?
There are a number of considerable benefits to outsourcing a company’s employee reimbursement policy. Of all of them, accuracy may be the biggest. With the right vendor, reimbursement rates are calculated to be fair and accurate to the individual receiving them. Not all companies have access to the data necessary to ensure employees are neither over nor under reimbursed. Reimbursing inaccurately or not at all can expose companies to legal risk. Outsourcing to experts mitigates this issue.
Another big reason is the human capital involved in managing employee reimbursement policy in-house. There’s the calculation and rollout, then there’s the oversight and approval. Depending on the company size, that can be a several hour task for one person each week or a whole team. Outsourcing employee reimbursement may cost money, but it also means considerably less administrative burden.
Finally, there’s an efficiency element. Even with an internal process down pat, there are snags. When an issue pops up, it’s the company that takes the time to correct the issue internally. When an issue pops up in a submitted reimbursement, that issue is handled completely by the vendor and rarely goes outside the vendor, the employee that submitted it and their manager. If the company’s internal process revolved around manual submissions or expense reporting, the right vendor can remove the admin work of those processes with automated solutions.
There’s a time and place for outsourcing your reimbursement program. Maybe it’s not something your company has given much thought, maybe it’s just low on the list of priorities. Fortunately, once an outsourced program is set up, the benefits present quickly. So, when might the right time be? Here are some warning signs that should let your company know it’s time to start considering outsourced options.
Small businesses have to stay lean and flexible to stay profitable. Outsourcing reimbursement may seem like an unnecessary expense, but over-reimbursing or facing a lawsuit for under reimbursing can result in serious financial trouble. The larger the number of employees, the greater the number of reimbursements, the higher potential for issues. When you have at least 5 employees, that is when you should consider the benefits of outsourcing your reimbursement programs.
A lot of company leaders just don’t think about how necessary variations in reimbursement are. If they’ve seemed to work before, the simplicity of stipends and flat rates makes the decision easy. However, employees operating in different states, even different areas of the same state, are incurring different costs for their work. An in-house employee reimbursement policy simply isn’t equipped to provide accurate payments. A vendor can calculate those rates for you and ensure fairness across the board.
With a smaller team, tracking reimbursements might appear to be as simple as calculating and tracking mileage, device and other asset rates in a spreadsheet. But even when the team is only five people, the numbers showing up aren’t quite adding up. You don’t have to be an expert in reimbursement. That’s why vendors exist. It’s a complicated process that requires significant data and experience. It makes sense to trust this to vendors that can deliver fair and accurate rates.
Some in-house programs include using an expense management platform where employees upload receipts into a platform and submit for reimbursement. This does help to automate things but checking for accuracy on those expenses can be an administrative burden.
What goes into any reimbursement rate? If it’s a rate for mileage, it has to compensate for the price of gas, right? But gas prices change frequently. So, should mileage rates also change? And there’s more to vehicle ownership than gas prices. How much of that should go into a mileage rate? Or consider reimbursing for home internet. Are your employees providing you the right internet rate for their house or are they exaggerating it? Determining any fair and accurate reimbursement rate requires considerable insight into localized costs. Trust a vendor with expertise in that area.
What makes getting reimbursement rates so important is employee satisfaction and potential legal risk. If a company fails to consider labor laws when providing reimbursements, they may find themselves the target of legal action. Your company may not want to pay to outsource your employee reimbursement policy, but consider the legal costs and potential settlement that comes from failing to meet labor law requirements. Companies mitigate those legal risks by partnering with the right vendor to provide fair and accurate reimbursements.
Also, accurate reimbursements can improve employee satisfaction. For example, providing a reimbursement for home office for your remote or hybrid workers can keep them happy with their job. Adjusting a driving employee’s reimbursement when gas prices rise will also employees feel seen and appreciated.
Reimbursements can be tricky. The IRS considers rates that are too high taxable. The IRS also considers reimbursements that aren’t clearly tied to business use taxable. When a reimbursement is taxed, employers pay more and employees receive less. Worse, if an employee reimbursement policy isn’t IRS compliant, it exposes the company to potential audit. The right vendor will ensure your company’s reimbursement policies remain compliant and audit free.
Whether your company is interested in learning more about the benefits of outsourcing reimbursements or you’re ready to start searching for vendor options, we’re here to help. Motus has been calculating and managing employee reimbursements across industries for decades. All of our rates are determined without best-in-class platform. Learn how to select the right vendor in this blog!