What is an employee expense? Definition, types, and categories.

Expenses incurred by an employee to carry out business-related activities or towards fulfilling their designated roles are categorized as employee expenses. Employees may incur expenses for purchasing office supplies, booking business travel, or booking accommodations. These expenses incurred by employees are either reimbursed by the company or paid for by the company through advances or corporate credit cards.

Types of employee expenses 

Employee expenses can be categorized into two types: reimbursable employee expenses and non-reimbursable employee expenses.

Reimbursable employee expenses 

In circumstances where employees pay out-of-pocket for company-related expenses, they are reimbursable since the company owes the employee for the cost incurred. Many organizations prefer to reimburse employees after validating their expenses across multiple approval levels. It also helps ensure better control over spending and discourages expense fraud.

Non-reimbursable expenses 

For organizations that offer corporate credit cards, prepaid cards, cash advances, and more to employees, the expenses incurred are by the company itself, rendering them non-reimbursable. Since the expenses are still carried out by employees, these need to be recorded, monitored, reviewed, and accounted for, thus requiring an expense reporting system to be in place.

Expense category examples 

Travel expenses 

Employees traveling for business purposes such as customer meetings, sales appointments, trade shows, events, training, setups, and the like are entitled to be reimbursed for all expenses incurred throughout the travel. This type of expense includes fares for flights, cabs, trains, car rentals, buses, and other alternative options such as electric scooters, shuttles, and trams.

All travel options chosen by employees are assumed to be reasonable options chosen to arrive at their destination comfortably. Most companies offer self-booking services to employees for flights, cabs, rentals, and trains that feature rates including corporate discounts. This also gives employees the freedom to choose their preferred booking option while leveraging company benefits.

Accommodation expenses 

A major expense incurred during business travel is accommodation. With multiple accommodation options such as hotels, guest houses, service apartments, bed and breakfasts, homestays, and more, employees have a wide range of options to choose from depending on their requirements. These expenses are usually differentiated based on the employee designation, requirement, or frequency and require robust approval workflows to monitor and manage.

Per diem expenses 

Per diem refers to daily allowances that organizations grant their employees to cover expenses incurred while traveling for business. This expense is one of the most varied in terms of rules, expenses it covers, limits, and more. While many countries such as the USA, Canada, Germany, and others have government-specified per diem limits for traveling business employees, other countries leave it to the companies to build a responsible per diem policy. While some set limits on every expense category covered within the day by the traveling employee, others have an all-encompassing limit for the employees to use as they see fit. These are the most significant employee expenses for companies that manage a high volume of business travel.

Mileage expenses 

For business employees who travel for work trips using their personal vehicles, the company must reimburse the employee for fuel and vehicle use. For fair compensation, this expense is calculated based on the miles traveled by the employee, called the mileage rate. These expenses incurred by the employee are referred to as mileage expenses. Mileage expenses vary across companies and countries depending on the fuel rate, government policies, and more.

Meals and entertainment 

Whether it is a dinner with a client, a workshop, a conference, or an office party with your coworkers, these expenses are categorized as meals and entertainment expenses. This expense category covers all meal costs incurred by employees for any company stakeholder, including clients, partners, and other employees, as long as the expense is towards a company-sponsored activity. It also includes miscellaneous entertainment expenses such as concert tickets, club fees, golf games, venue bookings, and other hospitality costs.

Office expenses and supplies 

Stationary items such as pens, staplers, notepads, or other office supplies such as USB drives and printer cartridges are necessary requirements for employees to perform their daily tasks. While most organizations procure these supplies in bulk, employees, on occasion, might purchase them during emergencies, special circumstances, or when they are working from home. Since remote work is a widely followed practice for many professionals these days, work supplies cover a wide range of gadgets and equipment, such as laptops, cameras, printers, phones, and more, depending on government regulations and local bookkeeping standards.

Utilities 

Basic utilities are expenses that employees may have to pay for, whether it is their personal mobile phone they use to conduct business, or the electricity, WiFi, or cable charges incurred to perform their business activities comfortably. With work from home gaining popularity, the share of these employee expenses is on the rise.

Subscriptions and fees 

With the rise in remote work, employees are required to spend money on software subscriptions that allow them to coordinate with their peers and get work done. Software such as video conferencing applications, sales tools, digital advertisement platforms, talent acquisition software, design tools, and the like may require employees to purchase subscriptions for work purposes personally. These individual licenses are classified as employee expenses. In some cases, expenses incurred on behalf of the company to hire a freelancer or professional for work are also covered under this expense type.

Professional development 

Employees willing to upskill, reskill, and upgrade existing knowledge to keep up with rapidly changing technology advancements are highly valuable to organizations. In order to encourage the same, companies now reimburse employees for taking up professional development courses. Since employees are given the flexibility to choose and upskill as per their preferences, companies usually have a detailed policy that defines the limits, categories, and, in some cases, the education platforms that employees can choose from.

Zoho Expense for managing employee expenses 

Zoho Expense’s extensive capabilities to help manage employee expenses for businesses of all sizes have been built over the years with extensive industry research and by incorporating valuable feedback from customers. The software allows organizations to categorize, control, plan, and reconcile employee expenses across categories, designations, departments, projects, and more. Sign up for a free trial and start your employee expense management journey today!