The 6 Simple Steps to Master Your Travel and Expense Management

The more your workers travel for work, the more out of hand your travel and expense management process are going to become. Even as you like to reduce the occurrence of your employees taking their work outside the office, it’s unavoidable. Sometimes, person-to-person interaction is the only way to get a job done. Maybe you manage properties, or provide assistance to disabled children and their families or you need to coordinate between multiple job sites. Some work can’t be replaced by phones or video conferences, and when that’s the case, how you handle your travel expenses becomes very important. 

So, whether you’re trying to figure out where to begin or you’re looking for ways to improve upon your existing processes, we’ve put together a simple six step guide to help you master your travel and expense management.

Step One: Define Business Travel

Before you can get a firm hold on your travel expenses, you need to first identify what qualifies as business travel. Regular commuting, for instance – that’s from home to a jobsite, or from a jobsite to home – won’t count. Everyone is required to drive to and from work, and it’s considered an employee’s own responsibility. Travel from the office to a work site, travel from the office to a second place of business and travel on work-related errands are considered business travel. 

It’s important that your definition of business travel lines up with that of the IRS. This is because one of your goals of an expense management program should be to ensure that employees are being fairly compensated for work trips, especially when they’re using their own vehicles. Having a reimbursement process in place isn’t mandated by the federal government, but if you follow proper guidelines, reimbursements made to employees can be deducted on your taxes. Being assured of reimbursement for their personal sacrifices is also a great booster of employee satisfaction and retention, as well.

Step Two: Determine Your Reimbursement Approach

Next, you need to determine how your business will handle expenses incurred by employees while they perform work-related travel. Here you have several options. 

Calculate Actual Expenses: Calculating the actual expenses associated with operating a vehicle for work-related travel is just what it sounds like it is. Employees must save all the receipts related to car expenses including registration fees, regular maintenance, insurance, fuel and other costs. These expenses along with the cost of depreciation are used to determine the total actual costs of operating a vehicle during a tax year. Then the percentage of vehicle use attributed to business travel must be determined. This is a complicated and tedious process, and most businesses larger than a few employees wouldn’t waste their time with the math. However, it is the most precise of your options. 

Issue a Car Allowance: This is a set allowance that you give each employee to cover travel expenses over a set period of time. It’s intended to help with the typical costs of owning and operating a car such as wear-and-tear, maintenance, fuel and depreciation. This is the easiest approach to travel and expense management since it takes very little infrastructure to set up. You don’t need to worry about what is or isn’t business travel, and employees don’t need to keep a mileage log. However, the IRS doesn’t see a car allowance as a deductible expense, but rather as taxable income. 

After taxes, a car allowance is reduced by 30-40%, making it insufficient to cover expenses effectively.

Use the Standard Mileage Reimbursement: To use this method, every employee needs to keep a mileage log that records all of their business-related travel. Then, their employers can reimburse them for each business mile traveled at the IRS standard mileage rate. Each year, the IRS announces the standard mileage rates for business travel, traveling for medical purposes or moving and travel on behalf of nonprofits. The business rate for 2020 is 57.5 cents, meaning reimbursing for work trips is a simple calculation: number of miles traveled multiplied by 57.5. If you reimburse at or below the IRS rate, the payment is not considered income and won’t be subject to taxes. 

Implementing a mileage reimbursement program using the standard mileage rate is truly the goldilocks option. A car allowance is too costly to be sustainable, and calculating actual expenses is too complicated to be feasible for a growing business. To use the standard deduction method, employees will need to keep a mileage log.

Step Three: Maintain a Mileage Log

Keeping a mileage log is a fairly straightforward process. At the beginning of a trip, your employees must record the starting odometer reading. In addition, they need to record the date of the trip, the starting and ending locations and the purpose of the trip. They also need to record the odometer reading once they reach their destination. 

Mileage logs need to be consistently maintained throughout the tax year. You can’t retroactively fill out information for trips; the IRS can usually see right through it when you provide ballpark numbers and dates. 

Step Four: Fulfill Reimbursement Requests

Depending on how much your employees travel for work, and how you want to structure your reimbursement process, employees should submit travel expense reimbursement requests periodically. When they submit their mileage for reimbursement, you need to have some kind of structured approval process set up within your business. This will ensure that trips have been verified and the mileage is legitimate before any payments are issued. 

There isn’t one single way to organize your approval workflow, but it’s advisable to have more than one person review the request before it’s approved. The process should also be well known and universally adhered to. A disorganized workflow will lead to a variety of issues – duplicate requests, losing track of requests before they’re paid, failing to adequately verify trips – all things that spell bad news when it’s time to file your taxes. 

Step Five: File Tax Returns

If you didn’t cut any corners along the way – making sure that employee mileage has been properly documented and reimbursements have been accounted for – then this step doesn’t need to be anymore headache-inducing than it already is. If you’ve followed an accountable plan in your travel and expense management efforts, none of your reimbursement payments will be subject to taxes. This requires that you can prove that travel expenses are business-related, have been accurately reported and any excess payments were promptly returned. 

Step Six: Retain Documentation

Even after filing taxes for the year, it’s important to keep all relevant documentation for at least three years should you be pinged for an audit by the IRS. Should you be asked to substantiate the mileage deduction your business took, you don’t want to be scrambling to get everything together. 

Masters of Travel and Expense Management

You may be questioning the simplicity of these steps, and setting up enduring travel and expense management procedures isn’t something you can build up in a day. You need to determine processes, train your employees and make sure all areas of your company are on the same page. There is a way you can simplify travel and expense management even further, though. 

With the help of mileage reimbursement software such as SureMileage from CompanyMileage, much of the process can be automated and streamlined. From tracking employee mileage to submitting expense reports and managing the approval process, SureMileage keeps your business organized and on track. Employees spend significantly less time documenting their trips, and our point-to-point calculations essentially eliminate the risk of mileage expense fraud. Our system also integrates with all major payroll and accounting systems. From start to finish, managing expenses can now be a simple, automated process.

To learn more about the advantages of SureMileage and our SureMobile app, request a demo with CompanyMileage today.