What Is a “Business” Expense?

What Is a “Business” Expense?

It is not uncommon for employees to have a company credit card. It is more common for an employee to be required to submit expenses deemed “business related expenses” to their employer for reimbursement. In most cases it requires the employee to submit a standardized form to the employer or if the employee has some degree of regular purchasing authority, an expense report is completed and submitted either weekly or monthly digitally or old school, on paper. This decade has seen the regularity of flexible credit cards that offered to employees with the company’s easy access to issue or cancel the card with specific limits for spending ability. One such company card is called Ramp. Cards like these certainly make irregular purchases by employees easier and more efficient for employers than handling paper and issuing checks.

Years ago, as a frequent traveler for a consulting company, I incurred expenses for air travel, rental cars, gas, hotels including a per diem that I was responsible for documenting. The cost, explanation (if out of the ordinary) and a summary was required to be submitted on a company provided expense form (albeit digital) every week’s end to get reimbursed the following week. The expense parameters where clearly spelled out including examples of exclusions. Exclusions would be things like NO first-class flights, NO meals or adult beverages, NO luxury vehicles and NO high-end hotels. If there was a question about what was considered reasonable, I was required to ask for clarification and approval. Trying to get “forgiveness” over “acceptance” for an excess charge would lead to its exclusion from reimbursement. I’m not as dumb as I look so I managed to learn quickly. Adding unusual things (no examples offered here) were simply deleted from the reimbursement form. So, the question arises, is the expense submitted really a business expense that the employer is obligated to reimburse the employee for?  Do you know who is to say? I will tell you… the guy writing the check.

Another common policy concern that follows the same level of business scrutiny is hourly payroll. Most companies have a specific number of hours required for their employees to work if in fact they are paid on an hourly basis rather than salary. Whether it be 9 to 5 or some other 8-hour period, the policy is written. The employee is required to “clock in” upon arrival and “clock out” at the end of their shift. Sometimes the clock in, clock out routine is required for lunch breaks, etc. This seems like pretty standard stuff… I would think.

I recently encountered a company who was struggling with a challenge having arisen in the last decade. This company, not having a specifically annotated policy in place for the clocking in and out routine had only stated that the employees were required to work 8 hours during the day without specifics for time as long as 8 hours were “clocked”. It seems the group of employees had decided, somewhere, somehow along the way considered their time in transit as “time on the clock”. In other words, they expected to get paid for their drive from home to work and their drive home again. Evidently this little event was left unchecked by both management and accounting. Which brings me back to the question, “Is that travel time a business expense?”  Historically, if you have ever had to ‘punch a clock’, as we used to say, your paid time only begins and ends when you’re physically present at the place of employment. So, what happened? We’ll circle back in a minute.

Getting back to submitting business expenses, unless your company has a clearly defined and annotated policy regarding the kinds of expenses that the company sees appropriate for submission, is there really a definitive expense that would be deemed business? Now if you are a reasonable person, which tends to be the barometer that law seems to be guided by, a reasonable expense is a cost incurred by a company (or authorized person of that company) that is considered ordinary and necessary for the operation of the business, something that is specifically required by the employee to perform their job responsibilities. Examples are countless, like paper for the copy machine, toiletries for the office bathroom, cleaning supplies for common areas, etc. I am sure most would agree that these are common office expenses. Would you consider buying gifts for your office colleagues on the company dime without approval and submitting the receipt for reimbursement? Probably not. How about buying pizza for the office on Friday’s? Again, without approval, would you submit the receipt for reimbursement? How about buying toiletries, clothes, or cosmetics under the belief that you only needed them because you only wear/use them because of work? Again and again, not likely.

Enter the world of “work from home” (WFH) or remote workers. It seems that the previously mentioned office expenses are now the responsibility of fewer companies. Does this blur the line on what is considered a reasonable business expense? For some it absolutely has. Let’s circle back to the previous mention of time an employee devotes to driving to and from work. If the employee is required to be “in the office” 2 or 3 days a week, is this a business expense such that the employer should be expected to pay for that time? Without a written policy in place, who is to decide? The employee’s argument is that if not for the time in the drive to the office, there would be no reason to spend their own money driving anywhere unless of course it was specifically NOT for the company.

I hate to beat a dead horse here (pardon the expression), but it has become infinitely more necessary for all companies to create a written and annotated policy regarding the use of company funds. I must refer to a perversion of the Golden Rule; “Whoever has the gold, makes the rules!” It is critically incumbent upon the gold-holder to clearly identify, sooner than later, what is acceptable and what is not acceptable expenses for the employee if they expect reimbursement as a business expense. Unfortunately, over the years, the argument for what is acceptable has led to some disagreement from up-and-coming employees. It appears that the recent host of capable staff members have a different view, angle if you will, as to what is reasonable or common and what is not. So, heed my caution… get busy policymaking or be ready for an argument.

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