Cost-cutting by tweaking your expense policy
Employee expenses, seen in isolation, in your Profit and Loss Statements, tend to be on the thinner side as compared to other expenditure. Hence, they may not receive as much attention from the decision-makers as other areas of the business. However, there is a bigger picture that is often overlooked as a result.
There are many other costs which go hand-in-hand with employee expense claims, the most obvious one of which is the administrative cost of processing the claims. Without a clear, concise expenses policy in place, the bookkeepers end up spending additional hours every month sorting out the inaccuracies and missing information. There is also time that claimants spend sifting through unclear policies to enter information and attaching receipts, which could have been spent more productively in their core jobs.
Therefore, not only do the businesses need to take a look at the expense claims themselves, but also the related invisible costs in order to cut costs.
- Revise the expenses policy to make the wording crystal clear and make it readily available to employees. Precious time wasted on trying to locate an inconspicuous document and then trying to make sense out of the jargon can be reduced, so, for instance, the sales team can focus on selling.
- A clear expenses policy leaves less room for error, so the administrative cost would also be culled.
Once we move on to the cost of expenses themselves, it is not just the expenditure that needs a closer look. Incorrect or poorly filled expense claims can leave unclaimed VAT that could have reduced the quarterly HMRC bill, which could be a big chunk for larger companies with a lot of corporate travel and entertainment.
Specifically speaking of the transactions that build up over the financial year, the policy can be tweaked in a reasonable fashion and without leaving employees out of pocket by analysing the frequent items on the expense claims. A review of the market would also give a clearer picture of how much the reasonable limits can be set up.
- Categorise expense types unambiguously to provide clarity to employees as well as the bookkeepers.
- Set reasonable limits to what employees can claim in each category, whilst keeping exceptions in mind such as hotel costs in London compared to the rest of the U.K. The HMRC guidance related to subsistence, for instance would also be a good pointer in setting these limits.
- Limit the use of first-class and business-class travel, e.g. it would make sense for a sales manager to travel from London to Houston, Texas on a business class flight, but not so much for a short-haul flight from London to Dublin, Ireland.
- Define scenarios where employees should or should not travel and incur expenses, perhaps even in the form of FAQs. The recent events, particularly Covid-19, have taught businesses to rely on virtual meetings. This learning could be incorporated in the expenses policy well into the future to limit travel unless absolutely no other option is available, e.g. the client requires physical presence to sign a Memorandum of Understanding.
- Establish time limits to how long since the transaction an employee can claim an expense.
All of the above is easier said than done, but is definitely far less of an administrative burden if an automated expenses system is in place. As a bonus, the business would save money on stationery and printing costs too! To get started, there is a handy guide to get the ball rolling.