Corporate Travel and Entertainment Policy Best Practices

Traveling employees often incur significant expenses on company-funded trips. But how much is too much? According to recent statistics, businesses spend approximately $799 per person per day on a business trip. Expenses can quickly add up if not carefully watched over. A travel and entertainment policy outlines what expenses are eligible, how much employees (and sometimes senior management) can spend on business-related travel and the specific terms for reimbursement.

In this article, we’ll explore what a travel and entertainment policy entails and how to make the most out of your business travel resources.

Travel and Entertainment Policy Definition

A travel and entertainment (T&E) policy is a set of regulations that govern business-related travel and entertainment expenses. It sets clear parameters regarding what is acceptable in an employee’s spending of company resources and reimbursement procedures. The policy also highlights acceptable activities for employees while traveling on company business; for instance, meetings and conferences.

Why Do You Need a Company Travel and Entertainment Policy?

For starters, the primary goal of establishing a clearly defined T&E policy is to ensure that employees clearly understand what is expected of them when it comes to spending company funds on work-related trips. It also sets out the guidelines for hosting or entertaining clients for business purposes. 

The travel and entertainment policy also enables management to mitigate risks associated with misuse of funds and identify potential incidents of fraud, alongside non-compliance with legal requirements. 

With that said, here’s a more detailed breakdown of the main objectives of a travel and entertainment policy:

Fraud Prevention

Unfortunately, deliberate and unintentional fraudulent activity in corporate travel still plagues businesses, leading to significant losses in the long run. In fact, it is estimated that companies lose $125,000 to fraud on average. Although the causes and impact of fraud in business vary by department, traveling employees may contribute to fraudulent activity knowingly or unknowingly.  

This arises from the fact that employee and business goals for travel don’t always align. Occasionally, some employees will seek to benefit themselves at the expense of the company. A comprehensive policy prevents fraud by imposing strict procedures for the use of company resources and submission of the expense reports.

>> Related: 5 Ways FinTech Reduces Fraud <<

Better Resource Management

A well-thought-out travel and entertainment policy ensures that employees only adhere to activities that are acceptable and beneficial for the company’s objectives. For instance, paying for a client lunch meeting may be considered acceptable if it helps in solidifying mutually beneficial working relationships.

With a clear policy in place, businesses can ensure that their employees make the most of their allocated travel and entertainment expenses while avoiding overspending and poor management of company resources.

Cost Savings

As mentioned earlier, corporate travel expenses can pile up as a direct result of poor expense management and fraudulent activity. A corporate travel and entertainment policy shields businesses from such issues. This can be achieved by ensuring that spending on business trips, events, and other related activities is done in accordance with the expenses limited by the policy.

The policy also helps companies save money by ensuring that all expenses are properly accounted for and that the company is getting the best value for its money.

Elements of a Company Travel and Entertainment Policy

Different companies set out different policies that reflect their values and culture. Such elements should be tailored to the specific needs of the organization after taking into consideration its size, budget, regulations, and culture. 

Key elements of a T&E policy include:

The Scope of the Policy

First of all, how a company decides on its travel and entertainment policies does not just revolve around booking flights and hotels. There are regulations and guidelines that govern the spending of the company.

The scope of corporate travel and entertainment policies covers vital details such as: 

The list goes on. In essence, the scope of the policy covers all the expectations for employees when traveling on behalf of the company or attending events.

>> Related: The Importance of Well-Defined Travel and Expense Policies for Businesses <<

Travel Approval/Authorization

All travel expenses, routes, and destinations should be authorized by appropriate managers and supervisors before they are incurred. Authorized expenses ensure that the trip is necessary for business, and will be covered by the company’s travel budget. Additionally, an authorization requirement will further help to prevent fraudulent expenses from being submitted for reimbursement.

Travel Budgeting Limits

While each company will have different budget limits, it is important for employees to stay within the budgeted amount so that expenses are kept under control.

Some key considerations for effective budget limits include:

Once the total cost of the trip is determined, an appropriate limit can be set for how much money an employee can spend. This limit may be based on the number of people traveling with the employee, among other factors.

Travel Risk Management

Travel risk management involves assessing, monitoring, and controlling any risks associated with employee travel. The goal is to protect employees and the organization’s assets from risk by carefully anticipating these risks and adequately planning to mitigate them. 

A risk management plan may include:

By taking proactive steps to manage risks, businesses can ensure the safety of their employees while traveling.

Travel Expense Reporting & Auditing

While T&E policies aim to provide clear travel guidelines for employees, it is important to point out that properly documenting and tracking employee expenses is essential for a company to manage its resources effectively.

Regular auditing further keeps the business compliant with tax regulation policies, and within budget.

When it comes to reporting and auditing travel expenses, there are several measures you can take to ensure accuracy and transparency. 

For starters, clear policies regarding acceptable expenses should be established and communicated to all employees. It should be clearly stated when these expenses must be reported, and more importantly, who is responsible for verifying them. If you’re in charge of a sizeable team, you may also want to consider using automated software systems to monitor and track employee spending in real-time. 

>> Related: Mapping the Travel Expense Accounting Process <<

Action Measures for Non-Compliance

Non-compliance with a company’s corporate travel and entertainment policy can lead to significant financial losses as well as potential legal issues. To ensure that all employees adhere to the rules, a clear action plan must be established for employees who do not comply.

First and foremost, any employee found guilty of violating the policy should receive a formal warning. The warning should be sent via email or letter and should include a detailed explanation of the violation.

If the violation persists, further action may be taken. This depends on company policy around fraud and could include disciplinary measures such as suspension, termination, or even legal action depending on the severity of the situation. 

Regardless, it is important to clearly define these consequences in the travel and entertainment policy so that employees are aware of the potential repercussions.

How to Create an Effective Corporate Travel and Entertainment Policy

Having a clear and effective corporate travel and entertainment (T&E) policy in place can help companies manage their expenses and set expectations for their employees. However, creating a policy that balances employee satisfaction and corporate cost control is no walk in the park.

A well-crafted T&E policy can help organizations save money on their travel and entertainment expenses while also ensuring that employees have a smooth and stress-free experience. 

Here are the key steps taken in developing an effective T&E policy:

Identify the Purpose of the Travel and Entertainment Policy

The purpose of a corporate travel and entertainment policy is to provide guidelines and regulations for traveling employees in their duty to the company. It ensures that company resources are used responsibly and ethically when traveling or entertaining on behalf of the company.

Establish Criteria for Travel

When creating a corporate travel policy, it is important to set clear criteria that determine who is eligible for business travel. Details such as the necessary qualifications, job title, and/or seniority level needed to be eligible for business travel can be outlined in the criteria. Additionally, the criteria for travel define the roles or responsibilities of each person traveling on behalf of the company.

Forecasting Your Budget

Forecasting the budget for business trips helps the company estimate how much money should be allocated for travel expenses and provides insight into which areas are likely to incur the most costs. Forecasting also allows you to set clear expense limits so that employees don’t overspend while on business trips. Some travel management platforms may even help you by calculating dynamic budgets based on real-time rates.

Setting Expense Limits

The policy should also specify which types of expenses are allowable and which are not. This will help employees understand what they can and cannot spend company funds on while traveling, as well as any limits that may apply.

Outlining Acceptable Expenses

It is important to list down what types of expenses are acceptable, as well as the limits on these expenses. 

When it comes to outlining acceptable expenses, there are several categories that should be addressed. Common examples of acceptable expenses in travel and entertainment policies may include transportation, accommodation, meals, and entertainment. It is equally important to specify what types of expenses are not allowed, for instance, personal purchases or services that are unrelated to business travel.

>> Related:  Highlights from the 2023 State of Business T&E Report <<

Handling Expense Claims

Another important aspect of a corporate travel and entertainment policy is to ensure that employees are submitting their expenses properly. To do this, employers should provide clear instructions on how to submit expense claims, as well as any documentation or receipts necessary to support the claim.

Establish a Timeline for Submitting Expense Claims

The company should set clear deadlines for submitting claims and require all claims to be approved before reimbursement is issued. By setting these expectations in advance, you can ensure that all employees are abiding by the same rules when it comes to filing travel and entertainment expenses.

Review All Receipts and Documentation

All receipts and documentation should be properly reviewed. This review should include an in-depth examination of both the original receipts and any accompanying documents. These may include itineraries, expense reports, or other forms of proof.

The purpose of this review is to ensure that any expenses incurred fall in line with the company’s budget. Additionally, the review provides an opportunity to check for any discrepancies or fraudulent activity. If a discrepancy is found, it should be reported to the appropriate supervisor/manager so that any necessary action can be taken.

Compare Expenses to Policy

It is important for businesses to compare employees’ actual expenses to the policy on a regular basis to ensure that all spending is compliant with company regulations.

A good way to compare expenses to policy is by using dedicated expense tracking software. These tools allow companies to track and review employee spending easily, as well as compare it against the policy.

Verify the Accuracy of Expenses

All expenses, no matter how minor, must be reported to the finance department. The responsible supervisor should then assess the accuracy of all expense reports before submitting them for reimbursement. In this process, you should provide a detailed review of individual expense items and overall accuracy of the report as a whole.

>> Related: Sample T&E Dashboards for Proactively Monitoring Compliance, Budget, and Anomalies <<

Follow-Up With Employees

Having a corporate travel and entertainment policy is essential for any business, but it’s just as important to ensure that the policy is being followed. To ensure compliance with company policies and regulations, managers should follow up with their employees regularly.

You should check in with your employees both before and after business trips to ensure that all expenses are properly documented and appropriate. Additionally, you should regularly review employee receipts and other expense documentation to ensure accuracy and compliance with the company’s travel policy.

Pay Approved Claims Promptly

As a business, it is important to pay any approved claims promptly. Doing so helps maintain a positive working relationship with employees and vendors.

When approving claims, ensure the total amount stated in the claim is accurate and all supporting documents are included. Supporting documents may include credit card statements, receipts, and other forms of proof. Additionally, it is important to confirm that the expenses are in line with corporate policy.

Conclusion

Creating a corporate travel and entertainment policy is an important part of a business expense management strategy. By establishing clear criteria for who is eligible for business travel, forecasting the budget, setting expense limits, specifying acceptable expenses, and monitoring spending, companies can ensure that their employee travel activities stay within budget.

FAQs

What is a travel policy?

A travel policy can be defined as the rules and guidelines established by an organization for business travel matters. Such rules dictate who is eligible to travel, where, and how much they can spend on meals and accommodations. Other essential matters discussed in the policy include reimbursements for expenses.

Why create a business travel policy?

A well-constructed policy helps keep business travel safe, cost-effective, and compliant. The main reason for creating a business travel policy is to protect the organization from financial risks and potential legal issues associated with employee travel.

What should be included in a corporate travel policy?

A comprehensive corporate travel policy contains guidelines for employees and contractors to follow when handling both domestic and international travel expenses. Important matters to be included in the policy should cover reimbursement rates, allowable expenses, booking procedures and restrictions, and safety considerations.

What should you consider when creating a business travel policy?

Key considerations to keep in mind include the destinations and objectives of trips to be taken by employees. The size of the business should also be taken into consideration since startups often don’t have the same resources as established companies.

What’s included in a T&E expense report?

A T&E expense report typically includes details about the dates of travel, expenses incurred, the purpose of travel, and any other relevant information such as airline tickets purchased or hotel accommodation. The names of those attending can also be included along with the cost per person for all meals and entertainment activities.

What travel expenses are deductible?

Generally speaking, several business-related travel and entertainment expenses are deductible. Examples of deductible travel expenses may include transportation (airfare, car rentals, taxis, etc.), lodging (hotel stays), meals, and entertainment.