Employee Reimbursement Policy

Employee Reimbursement Policy Template Australia

Establishing a clear and compliant employee reimbursement policy is essential for any Australian business. It ensures fair and consistent treatment of staff, helps manage company finances effectively, and provides clarity on tax obligations. This guide, along with a practical template, will help you create a robust framework for handling work-related expenses.

What is an employee reimbursement policy?

An employee reimbursement policy is a formal document that outlines the rules and procedures for when a company repays an employee for money they have spent out-of-pocket on legitimate work-related expenses. Its primary purpose is to provide clear guidelines for both employees and managers, preventing misunderstandings and ensuring all claims are handled fairly and consistently. A well-defined policy also supports compliance with the Australian Taxation Office (ATO) guidelines, helping to correctly classify payments for tax purposes.

Key components of an employee reimbursement policy

A comprehensive policy should address several core areas to be effective and clear for all parties involved.

• Policy Purpose and Scope: A statement explaining why the policy exists and who it applies to within the organisation.
• Definitions: Clear explanations of terms like 'reimbursable expense', 'pre-approval', and 'substantiation'.
• Eligible Expenses: A detailed list or categories of expenses the company will reimburse.
• Non-Reimbursable Expenses: An explicit list of expenses that will not be paid back by the company.
• Claim Submission Process: Step-by-step instructions on how employees should submit claims, including required forms and documentation.
• Approval Authority and Process: Designation of who can approve claims and the workflow for review.
• Payment Method and Timeline: Information on how and when reimbursements will be paid.
• Record-Keeping and Compliance: Rules for retaining receipts and the policy's alignment with ATO requirements.

How to use the Doculau Employee Reimbursement Policy template

Our template is designed to be a practical starting point for Australian businesses. It provides a structured document with standard clauses and sections that are common in reimbursement policies. To use it effectively, you should review each section carefully and customise it to fit your company's specific needs, culture, and operational procedures. Insert your company name, adjust approval hierarchies to match your organisational chart, and tailor the lists of reimbursable expenses to reflect the actual costs your employees incur. The template serves as a framework—your input makes it your policy. For example, you might define specific spending limits for meals while travelling, or outline the exact software to be used for submitting claims.

What information to include in the policy

Beyond the key components, your policy should be grounded in practical details. Specify the exact forms or software to be used for submissions. Define the hierarchy for approvals (e.g., team leader, department manager, CFO). Clarify if there are spending limits for certain categories, like meal allowances or client entertainment (e.g., a daily limit of $75 for meals while travelling overnight for business). Importantly, reference the need for compliance with the Australian Taxation Office (ATO) rulings on expense payments and fringe benefits. A good policy leaves no room for ambiguity about what is required from an employee to get repaid.

Common reimbursable expenses in Australia

Typical work-related expenses that Australian businesses often reimburse include travel costs (flights, accommodation, mileage for use of a private vehicle at a rate of, for example, $0.85 per kilometre), meal allowances incurred while travelling for business, client entertainment (within reasonable limits and requiring detailed justification), conference or training registration fees, necessary work-related tools or equipment, and home office expenses if working from home is a formal arrangement. The key principle is that the expense must be directly related to earning the employee's income and must not be private in nature.

Non-reimbursable expenses

To avoid disputes, your policy should clearly state expenses that will not be covered. These commonly include fines (like parking or speeding tickets), personal grooming items, travel upgrades for personal comfort (e.g., business class flights without business justification), costs related to commuting from home to the regular place of work, and expenses incurred without the required pre-approval where such approval is mandated by the policy.

Process for submitting reimbursement claims

A streamlined submission process is vital. The policy should instruct employees to submit claims within a specified period after the expense is incurred (e.g., within 30 days). It must require original, itemised receipts or invoices as proof of payment. Claims are typically made using a standard company expense form, which should capture the date, amount, business purpose, and client or project code. Emphasise that claims without proper substantiation will not be processed.

Approval process for reimbursements

The approval workflow ensures oversight. The policy should designate authorised approvers, often the employee's direct manager or a department head. It should state that approvers are responsible for verifying that the expense is legitimate, complies with policy, and is correctly documented. For expenses above a certain value (e.g., $1,000), a secondary or senior approval might be required. The process should include a timeline for approvers to review submissions to avoid delays.

Payment timelines

Setting clear expectations for payment helps maintain employee trust. The policy should specify how often reimbursement runs are processed—for example, weekly or bi-weekly, aligned with payroll cycles or separately. It should indicate the expected timeframe from when a fully approved claim is received by finance to when the payment is issued, such as within 7-10 business days of the end of the processing cycle. This transparency helps employees manage their personal cash flow.

Tax implications of reimbursements in Australia (ATO guidelines)

Understanding the tax treatment is crucial for compliance. According to the Australian Taxation Office (ATO), if you reimburse an employee for an expense they would have been able to claim as a tax deduction themselves, and you have the necessary substantiation (like receipts), the reimbursement is generally not considered taxable income to the employee. However, if the payment is an allowance or covers private expenses, different rules may apply. It's important to structure reimbursements correctly to avoid creating Fringe Benefits Tax (FBT) liabilities. For definitive guidance, businesses should consult the ATO website (ato.gov.au) or a qualified tax advisor.

Record-keeping requirements

Both employees and the business have record-keeping duties. Employees must keep all original receipts and provide them with their claim. The business must retain these records, along with approved claim forms, for a period as required by law (generally 5 years). These documents are necessary to substantiate the business deduction for the expense and to prove that the reimbursement was for a work-related purpose if queried by the Australian Taxation Office (ATO). Digital copies are generally acceptable if they are a true and clear reproduction of the original.

FAQ on employee reimbursements in Australia

Can employees claim expenses without receipts in Australia?
Company policy typically requires employees to provide receipts for all reimbursement claims to ensure proper substantiation and compliance with ATO record-keeping requirements. While the ATO has specific rules for certain expenses (like travel where specific conditions apply), a company policy can be stricter and require receipts for all items to maintain clear records and avoid potential tax issues.

What are employee reimbursable expenses in Australia?
These are expenses an employee incurs in the course of performing their work duties, such as work-related travel, client meals, training courses, or required equipment. The expense must be directly for the benefit of the employer's business.

Are employee reimbursements taxable in Australia according to the ATO?
Genuine reimbursements for properly substantiated, work-related expenses are generally not taxable income for the employee. However, allowances or reimbursements for private costs may be treated differently and could be subject to tax or FBT.

What is the best way to reimburse employees for expenses in Australia?
The best approach is to implement a clear, written reimbursement policy that specifies eligible expenses, requires substantiation (like receipts), and outlines a consistent approval and payment process. Integrating this with payroll can enhance efficiency and record-keeping.

Do employee reimbursements need to go through payroll in Australia?
It is common and administratively efficient to process reimbursements through the payroll system, as it ensures accurate record-keeping. However, reimbursements can also be paid separately from payroll if the company's system allows.

How does employee reimbursement work in Australia?
An employee incurs a work-related expense, retains the receipt, submits a claim form with the receipt to their manager for approval, and upon approval, the company repays the employee the claimed amount according to its policy.

What constitutes reasonable reimbursement for employees in Australia?
Reasonable reimbursement refers to the actual cost incurred for a necessary work purpose. It should be fair, justifiable, and often guided by industry norms or ATO guidelines for allowances.

Can you provide an example of an expense reimbursement policy for an Australian business?
Our template provides a foundational example, covering essential sections such as policy purpose, eligible expenses (e.g., kilometre allowances for business travel), the claims submission process, approval workflows, and references to ATO compliance.

What other work expenses can employees claim on tax in Australia?
If not reimbursed by their employer, employees may be able to claim deductions for work-related expenses like home office running costs, uniforms, self-education, and tools, provided they meet specific ATO criteria for deductibility.

What are some expenses that are tax deductible for employees in Australia?
Common deductible expenses include vehicle and travel costs (if not reimbursed), work-related clothing and laundry, self-education expenses, and tools or equipment, provided they are directly related to earning assessable income and meet ATO conditions.

What expenses can employees claim on taxes in Australia?
Employees can claim a deduction for any expense to the extent that it was incurred in gaining or producing their assessable income, provided the expense is not private or domestic in nature and they have the necessary records (receipts) to prove it.

What is the most overlooked tax deduction for employees in Australia?
This can vary, but employees sometimes overlook deductions for work-related expenses such as professional development courses, union fees, or specific equipment required for their job when lodging their tax returns.

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