A simple guide to writing a travel expense policy for a small business
Imagine sending your team off on a business trip without any clear guidelines. Expenses spiral, and suddenly you're dealing with first-class upgrades and five-star dining receipts, all charged to your company card. Sounds like a nightmare?Whether you're the one keeping the books or the one booking the flights, having a travel policy ensures every mile driven, every meal eaten and every hotel stay is accounted for, fair and within budget. From defining what's allowable (like per diems and airfare) to laying down the law on those little extras (like incidental expenses and upgrades), this guide covers it all.Plus, you'll ensure your business stays compliant with HMRC regulations, all while making sure your team knows the difference between what’s a business expense and what’s personal. So, let’s get to it!What is a travel expense policy in a small business?
A travel expense policy is a set of company rules that outlines how employees should handle costs related to business travel. It also sets clear per diem rates, clarifies reimbursement requests and defines what qualifies as deductible and non-deductible items, ensuring there’s no ambiguity when employees submit itemised receipts.When it comes to travel and expense management, the priorities of the organisation and those of the employee don’t always align. While companies are focused on cost, compliance and safety, employees look for comfort, luxury and convenience. It’s therefore suggested that you draw up a travel expense policy that falls somewhere in the middle.Why should small businesses make a travel expense policy?
Implementing a travel expense policy in a small business is about smart financial management and keeping everyone on the same page. Small businesses often thrive on flexibility and a lack of red tape. But a little bit of structure, especially when it comes to managing expenditures (like car rentals, airfare or lodging expenses), can save a lot of headaches.- It provides clear guidance to employees. With a travel expense policy in place, employees know exactly what’s covered—from mileage reimbursement for personal vehicle use to allowable lodging and meal expenses. They won’t have to check with finance every time they need to make a payment. The rules are already set out.
- It eliminates any grey areas. A policy helps prevent misunderstandings about what is considered reimbursable expenses, such as tolls, gratuities or business class upgrades. By setting clear rules on such expenses, including how to handle international travel or cross-country trips, you minimise the risk of employees unintentionally breaching company guidelines.
- It makes employee spending more predictable. For the person managing your business’s finances, whether it’s the office manager or a designated finance officer, having predictable travel-related expenses is key. Restrictions on expenditure, such as limits on hotel room costs or specific guidelines for meal expenses, help control costs and avoid unanticipated out-of-pocket expenses.
- Tax compliances. An added benefit of having a documented expense policy is that your employees won’t need to declare their reimbursements as taxable income. They’ll thank you for this coming tax season.
What do small businesses need to include in their expense policy?
It’s important to define budgets. This should be based on your business’s current financial situation. It’s also important to bear in mind that budgets can fluctuate with the seasons, so you should aim to provide a general rule. And, while a large corporation might need to include maximums for every major city and route in the world, a sufficient travel expense policy for small businesses might include just a few popular cities and routes that the company travels. This targeted approach helps manage travel costs effectively without overcomplicating the process.Your expense policy should also clearly outline the process for booking travel. Review the booking tools that employees can use, how far in advance they should make travel arrangements and how they should pay. With TravelPerk, everything you need is in one place. You can book from a huge inventory and define a travel policy and approval workflow in under two minutes on Premium plans.Make sure you set out what the company will cover in terms of travel-related expenses. For example, if an employee is having dinner on a work trip, it’s a given that this should be covered as a business meal expense. Now let’s say this employee wants to treat a client or contact to dinner, because they think it would positively impact the business relationship, covering these costs would definitely be in the best interest of your business.A good travel expense policy should also cover expense filing and a plan for reimbursements. Questions you need to answer are:- How should staff file their expenses, and what’s your system for managing expenses?
- What documentation is required to ensure policy compliance, e.g. bank statement or VAT receipt?
- What is the timeframe for submitting reimbursement requests? Will they receive the money in the next pay run, or separately?
Your policy should also address other important details, such as spending limits for various expense categories like lodging, meals and entertainment expenses. Also, make sure to outline procedures for handling cancellations or additional costs that may arise during travel.Lastly, consider the specifics of your business operations. For example, if your employees frequently use public transportation or require travel insurance, these should be clearly addressed in the policy. A lot of your policy will depend on your business goal and current travel set up. For example, using a small business travel agency will have higher costs for changing flights than say a booking tool or travel management company (TMC), so you may want to be more restrictive—or perhaps you need sales staff to be able to react quickly and visit clients. These are all things to consider in your expense policy.How should you communicate your travel expense policy?
When communicating your travel expense policy, clarity and accessibility are key. This ensures that everyone in your business, from seasoned employees to non-employees or contractors involved in official business, understands the guidelines. Here's how to effectively share your policy:- The #1 rule is to keep it simple. The effects of mistakes or misunderstandings are magnified when you work at, or own, a small business, which is why it’s immensely important for small business corporate travel policies to be clear.
For example, if your policy clearly states, "All flights must be booked in economy class unless prior approval is obtained," there's no confusion. This prevents employees from mistakenly booking more expensive tickets, reducing errors and making compliance easier.- Tailor for communication. Directly explain the business purpose of the policy. Employees need to know the policy is there to manage business-related expenses like air travel, hotel bookings and registration fees. By clearly outlining what qualifies as personal travel versus official business, you prevent those misunderstandings.
- Be consistent. It should also be a document that applies to everyone. Travel policies are equally applicable to upper management and they should lead by example. Try not to make exceptions.
- Highlight key points. Focus on the essentials like allowable expenses, mileage rates for personal automobiles and the use of personal funds. Make it clear which expenses require itemised receipts, such as alcohol or travel advances. By emphasising these points, you minimise the risk of employees making unauthorised or unclear expenditures.
- Automate your process. Often at small businesses, it can be uncomfortable for someone monitoring employee expenses to be too direct with employees about what they can and cannot spend. Managers might be tempted to let some things slide. Automation solves this problem.
Frequent problems small businesses have when creating expense policies
When creating your travel expense policy, you should avoid mistakes that can lead to inefficiency, frustration and even financial loss. Here’s what to watch out for:- Using paper expense claims: this is another case for automation. Free apps are a good option if your business is small and new to expense management software. This way you can try different apps to see which one works best for your business before investing in a paid version.
- ‘Penny-pinching’: you don’t want your employee to have to spend hours trawling the web to find something that fits your budget. As well as causing major problems for productivity, this will lead to unhappy employees. You should make the policy as fair and flexible as possible.
- Lax or loose policies: a policy that is too lax or loose leaves the door open for employees to take advantage. Organisations lose an estimated 5% of revenue to expense report fraud each year. In fact, the total losses were calculated to be $3.1 billion (£2.3 billion) in total.
- Not reviewing your policy regularly: let it be road-tested by your employees and then see if there’s room for improvement.
- Ignoring compliance with local laws: it may seem obvious, but ensuring your policy is compliant with local laws is crucial. Whether it’s following His Majesty's Revenue & Customs (HMRC) guidelines in the UK or other relevant regulations, double-checking compliance will save you from legal headaches down the line.
Manage your small business travel with TravelPerk
Creating a travel expense policy for your small business might feel challenging, but with the right approach, you can make a big difference. As your business grows, you can adjust your policy to continue meeting your team’s needs and your business’s budget. Take the time to get it right, and you’ll see smoother operations and a stronger bottom line on every trip.?)
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