Businesses or organisations sometimes require employees to make out-of-the-pocket payments for certain activities. These activities may include participating in a conference, travelling to meet a client, paying for filling out legal forms, and more. A reimbursement program ensures employees that the employer will later compensate them for these payments.
Most firms use HR software, especially staff attendance and payroll management applications, to manage such claims for reimbursements online. The primary aim of providing salary reimbursement is to reduce the taxes on the monthly gross income of employees.
How Does Salary Reimbursement Work?
An employee can request the HR of the organisation for salary reimbursement. They must fill in the details of the expenses, including the amount and invoices receipts with the date. As reimbursement is a key part of the salary, employees must store all business-related receipts and bills to get tax exemption in their payroll.
Every organisation’s HRMS has its remuneration policies and periods. Each organisation also has a set of rules and attendance monitoring and payroll system documentation to pay back the remuneration to their employees. For instance, the reimbursement claim must usually be processed within 60 days or less. Typically, it will be credited to employees at the beginning or end of the month.
Any business that provides salary reimbursement must ensure the claim is made for legitimate purposes. In most cases, reimbursement expenses are usually related to business travel and commute, including transportation, stay, and food. However, employees are also allowed reimbursement for continued education and healthcare in some organisations.
The accounting team must carefully verify all documentation to prevent fraudulent activities and achieve proper internal assessment.
Types of Salary Reimbursement
- Travel Reimbursement
Employees are sometimes assigned to travel both outside and within the city. The money spent on this trip will be reimbursed. The usual costs cover airline tickets, ground travel, hotel accommodations, and more. Moreover, the expenses incurred for using vehicle rent can also be included in the reimbursement if the purpose of travel is for business.
- Fuel Reimbursement
Employee expenses for fuel changes incurred for official duty are added to the fuel or petrol reimbursement. The amount can be reimbursed depending on the bills produced.
- Medical Reimbursement
Every employer arranges a salary reimbursement plan for employees to cover medical expenses such as medical bills, medication, hospitalisation, etc. According to the Income Tax Act of India, the government offers tax exemption of medical reimbursement of INR 15,000 provided by the employer.
- Telephone/Mobile Reimbursement
Some businesses also facilitate salary reimbursement for telephone, mobile, and internet bills for employees. However, employees must meet specific eligibility criteria to request this reimbursement. For instance, the connection should be postpaid, and the receipt must be in the employee’s name.
- Uniform Reimbursement
If an employee spends money on official uniforms and other related products, it can be claimed under uniform reimbursements.
- Magazine and Newspaper Reimbursement
Employers may request employees to update themselves with political or economic changes or learn new industry trends. The amount an employee pays for any newspaper and magazine subscription for such official purposes can be reimbursed. The claim for this reimbursement will be extended as defined by the company.
Benefits of Salary Reimbursement
According to the Payment of Wages Act, salary reimbursement plays a key role in the policy of every business entity. Here, we have highlighted the top benefits of salary reimbursement for businesses and employees.
- Enhances Employee Satisfaction
Research shows that 13% of employees perform better when happy with their employer. If the reimbursement period takes too long to get their money back, they will feel dissatisfied with the management.
Ignoring employee satisfaction will eventually lead to a lack of productivity, motivation, and efficiency. Hence, implement the best reimbursement practices to make them more productive at work.
Paying out the reimbursement of employee expenses manually may take longer and cause errors. However, automated payroll software in India can handle reimbursements smoothly and hassle-free.
- Establishes an Employee-Centric Culture
The growing focus on employee experience drives companies to be mindful of their efforts in their expense reimbursement policies. Educating employees about specific reimbursement policies or regulations will encourage communication and feedback. It empowers employees to appreciate these policies or raise concerns about incorrect reimbursement amounts, maintaining an employee-friendly culture. This way, the company can reduce the possibility of underpaying/overpaying employee expenses.
A manual reimbursement process is not customised and might overlook policy violations. With a digitised staff attendance and payroll management application, you can easily tailor reimbursement expenses and avoid violations or discrepancies.
- Better Financial Health and Compliance
A well-crafted reimbursement policy will enable human resource management to ensure that the money is spent for legitimate purposes and that employees make no violations. This way, businesses of all sizes can develop best practices for attendance monitoring and payroll system documentation and make smart decisions about budgeting for the firm.
A predefined reimbursement policy also helps HR and employees stay confident while presenting reimbursement transactions, ensuring compliance with laws and a smooth audit process.
- Increases Efficiency
An effective reimbursement policy enables employees to make responsible expenses while maintaining records, making every process more efficient. Human resource management will assess the data with predefined policies when an employee submits their expense report. The financial team will verify the expenditure receipts, assigning employees to make any corrections and making it easy for them to claim the expense reports.
Having expense management software might significantly reduce the turnaround time for employers and employees in handling the labour-intensive tasks of the reimbursement claim process.
Things to Keep in Mind Before Claiming Reimbursement
Despite the countless benefits of reimbursement, one must remember certain things to achieve fruitful results. Let’s take a look at them:
- Prepare the Necessary Documents – The primary requirement of salary reimbursement is to submit completed documents – including invoices, proof of payment, and more. Keep a copy of the documents with yourself and organise them neatly for future reference.
- Process Payments as Soon as Possible – Even in normal situations and peak financial health, some firms might take longer to process reimbursement applications than necessary and blame the employee for the delay. Hence, employees must apply for reimbursement immediately and perform everything on official records.
- Learn the Terms and Procedures – Understand every policy, deadline, clause, limit, and procedure of the reimbursement plan.
- Careful Calculation – Double-check all receipts and calculate the reimbursement amount before submitting it to the firm. Moreover, compare and calculate the amount the employer has approved to avoid discrepancies and conflicts.
Salary reimbursement encompasses various elements, and the unique structure of our payroll software in India makes it challenging for human resource management to tailor to the savings schemes and tax burden. At sumHR, we simplify HR roles and responsibilities by helping you estimate employees’ salary reimbursement, record expenses, and provide timely salaries. Whether filing expense reports or verifying those expense claims, we automate all HR roles and responsibilities. We will help you plan for optimal financial progress by streamlining every operation with a few clicks.
- Is reimbursement a part of your CTC?
Yes, a CTC includes the reimbursement amounts of the employee. Cost-to-Company (or CTC) is the total amount the organisation spends on its employees. In simple terms, it is the total salary package of the employee. The final structure of CTC involves basic pay, allowances, reimbursements, and more.
- What is the difference between reimbursement and refund?
Reimbursement and refund are similar yet different concepts. Refund is usually provided to customers by the organisation if there are any issues like defective/damaged products or in the event of poor services. On the other hand, reimbursement is for employees to provide for the expenses incurred out-of-the-pocket for carrying out any business-related tasks.
- Is TDS applicable for reimbursement of expenses?
The income tax allows the employee to claim tax-free reimbursement, lowering the bill amount or the amount offered in their payroll package. TDS is applicable for certain case laws of expenses that provide profit to the business or organisation. However, when the out-of-the-pocket expense is made without a profit element, TDS will not be applicable in such circumstances.