Working on the Road
Set some rules for employee travel expenses
An employee books a rental car, waives liability insurance to shave off a few bucks and then gets into a crash, totaling the vehicle. An effort to save a few dollars ends up costing the company thousands.
Another employee comes back from a business trip and hands in a receipt for a $600 dinner at a high-end steakhouse with a client and their respective spouses. A dispute ensues over how much of the tab should be covered by the company.
Both scenarios show why companies big and small need a clearly articulated travel policy that will not only detail what expenses the company will reimburse, but offers employees guidance on how to make travel arrangements. And for companies with frequent travelers, it may make sense to go one step further and develop a travel management program in order to cut down on costs.
A well-run travel management program — with the company handling airline, hotel and rental car arrangements — could cut travel expenses up to 30 percent, said Nathan Prior, president of the Central and North Florida Business Travel Association.
It’s much better to establish what a company’s expectations are when it comes to travel than deal with issues once an employee gets back from a trip, said Prior, who is director of sales for Enterprise Holdings in Orlando.
When it comes to establishing a travel policy, a company first must determine whether it’s worth developing a travel management program that goes beyond a set of written guidelines.
Through such a program, one person or department is in charge of handling a business’s travel arrangements. That single point of contact can scrutinize how much the company spends on travel and arrange contracts with airlines, car rental agencies and hotels to ensure the company gets the best deal.
When it comes to negotiating a contract, a company needs to know how much it spends on travel, the top markets its employees visit and the average length of business trips. The contracts sometimes obligate a company to spend a certain amount of money every year.
Having a coordinated program to track travel also helps a business know where its employees are and that they are safe, said Jeannie Eisenhart, senior manager of corporate travel and meetings at Jacksonville-based Crowley Maritime Corporation.
When Hurricane Irene was churning toward New Orleans in August, Eisenhart said she saw Crowley Maritime had employees visiting there, and she was able to check in with them. When an airline was threatening to go on strike in Europe this summer, she quickly rebooked an employee’s flight out so the employee departed a day before the strike was to begin, said Eisenhart, a member of the Global Business Travel Association.
There can be fallout from employees making their own travel arrangements haphazardly.
“We have negotiated car rental deals, and part of it is that you get liability [coverage],” Eisenhart said. “If you’re booking on your own, an effort to save $1 may end up costing the company $30,000 … . The overall savings lie in a travel management program.”
When putting together travel policies, here are 10 points a company can consider incorporating:
SUPERVISOR OVERSIGHT — What, if anything, needs to be run by a supervisor before a trip is booked? Should a supervisor be given a general cost estimate of a trip before plans are confirmed? Might videoconferencing be a more cost effective option?
BOOKING TRAVEL ARRANGEMENTS — Should there be a go-to travel website such as Orbitz that is used to book trips? Should employees call a hotel or airline before booking to see if there might be better rates than what’s online?
AIR TRAVEL — Establish under what circumstances, if any, an employee can book a seat other than the cheapest available.
Employees who have corporate credit cards could be required to use them to book flights so the company gets to keep the frequent flier miles. In general, having employees charge travel expenses on a corporate credit card eliminates having to reconcile expenses later on.
GROUND TRANSPORTATION — Companies often have policies that require employees to rent compact or midsize vehicles. It should be clear in the policy whether the deductible portion of collision damage and personal accident coverage should be purchased or not.
The large national car rental agencies have rewards plans for small and midsize businesses, so it makes sense to try to stick with one agency rather than spread the dollars around. Such rewards plans can offer savings of up to 20 percent with free upgrades.
LODGING — Small and midsize businesses also should look at registering for rewards programs with hotel chains, or even establishing relationships with hotels in towns that employees frequent regularly.
Many companies require that single rooms are booked and the price is no higher than the midrange rooms at the hotel.
If the employee stays at a private home instead of a hotel, it could be written into the policy that a gift can be bought for the host and expensed to the company.
MEALS — When establishing guidelines on how much an employee can spend on food, companies can go two routes. One is to have a set per diem with any expenditures outside that amount coming out of the employee’s pocket. To establish the per diem rates for cities in the United States, you can use the U.S. General Services Administration’s website as a guide (to find per diem rates go to http://www.gsa.gov/portal/category/21287#).
The second option is simply have the company cover all meal expenses with the expectation that the employee will not go out for extravagant meals.
Companies need to specify what meal expenses will not be covered, particularly hotel room service and alcohol. Prior said he has heard of some businesses that do not cover the cost of alcohol.
ENTERTAINMENT COSTS — For entertainment costs to be tax deductible, it must be shown that they were “associated with the active conduct of your trade or business” and happened “directly before or after a substantial business discussion,” according to Internal Revenue Service guidelines.
Employees who entertain during business trips should be able to document the event, who was with them at the event and the purpose of it. A travel policy also can be explicit in what entertainment costs will not be covered by the company (i.e. adult entertainment, nightclubs).
It also should be made clear that employees should not be entertaining each other and counting it as a business expense.
INCIDENTALS — Should the company pay for Internet access fees, dry cleaning services or in-room movies?
BRINGING SOMEONE ALONG — A good travel policy will establish whether an employee traveling with a spouse is responsible for the cost difference between a single and double room.
EXPENSE REIMBURSEMENTS — Have clear guidelines on how employees get reimbursed for expenses. Do they need to submit receipts for every expense? Many companies require receipts for any expense $25 or more while other businesses follow Internal Revenue Service guidelines requiring receipts for anything more than $75.
Many companies require such expenses to be filed within 30 days, but the IRS considers 120 days to be “a reasonable period of time” for such filings. n