All That You Need to Know About Employee Reimbursement

As a part of compliance management processes, organisations must ensure that payroll compliance is followed. One of the processes involved in it is that of employee reimbursement. Employee reimbursement is the process of compensating employees for expenses that the employees from their own pockets have handled. This process extends to even customers, clients, shareholders, and third parties who have spent on business-related expenses for an organization.

Reimbursement and Compensation – The Difference

Reimbursement and compensation may seem like synonyms of one another, but there is one key difference that differentiates the two concepts. When it comes to reimbursement, employees are paid back for making expenses from their own pockets. Compensation, however, is a payment made to employees to make up for experiencing situations such as overtime or any discomfort or inconvenience employees experience whether or not they are fulfilling company needs and goals.

There are 3 main types of employee expense reimbursements:

• Insurance:

Reimbursement is also used in insurance and healthcare. For instance, employees who may be injured or suffer injuries while on the job can claim insurance from a provider. These providers can be public or private and reimburse costs that insurance providers have paid during an emergency. 

• Taxes:

Reimbursements are a common practice that happens during taxation. Both common statutory compliance practices are if and when a taxpayer has paid excess tax as tax collected at source (TCS) or tax deducted at source (TDS). The amount paid can be claimed as a refund on the excess taxation amount when filing income tax returns (ITR). 

• Legal:

during a process of arbitration or litigation, reimbursement is also a common practice. In the event of a successful judgement in favour of a plaintiff seeking justice, organisations are obligated to repay legal fees incurred by executives or employees. This also extends to taxes and taxpayers who may pay extra and not be reimbursed for credits they are entitled to. 

The Reimbursement Process Made Easy: 

• Policy and Rule Formulation: 

creating a reimbursement policy within an organization with well-defined and efficient protocols and rules with respect to the organization can go a long way in saving time and cutting down on errors in an organization. Management can provide information and even clearly communicate to employees what is required from them and the steps involved in the reimbursement process.

• Expense claim collection: 

Organisations should set up structures or avenues for employees to submit their expense claims in a way that does not become an obstacle. For instance, organisations can clarify what relevant claims and supporting documents they may need to collect and process reimbursement claims related to employee benefits that employees are entitled to claim. 

• The Verification processes: 

Managers who have the task of processing and verifying employee expense claims and reimbursement requests will need to have enough time and access to resources to verify the legitimacy of these claims. This also includes ensuring that the claims that have been submitted are complete with all relevant and required documents in place.

• Clarifying a Time Frame: 

Employees must be made aware of how much time an organization will need to process these claims and the potential timeline for their reimbursement. This will include clarifying the payment method to employees and assisting them in any and all queries they may have in this process. Organisations have been greatly benefited from the assistance of online payroll services in this regard.