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How to Create a Travel Policy That Follows Sound Accounting Practices

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When you create a travel policy, your first goal is to reduce risks through standardization and clarity. A close second should be creating a strong accounting system to track your travel expenses. This will allow you to accurately update your books, and with that information, you'll be able to better control your costs.

Deciding What Expenses to Incur

It's standard practice in most industries for employers to reimburse employees' transportation, lodging and meal expenses when traveling away from their home location. While you should track these expenses by category, your travel policy should be based on the overall cost.

For example, midweek and weekend airfares are generally less expensive than Sunday evening, Monday or Friday travel. The cost of an additional hotel night and meals may be significantly less than the cost of a peak-time airfare.

Consider that flexibility policies focused on cost control rather than rigid rules may empower employees to choose the most economical option under any circumstances. 

Allocating Expenses by Project or Client

Each trip should be allocated to project, client or service division. Even if your company isn't seeking reimbursement from an external party, you still want this data for cost allocation purposes.

For trips involving more than one client or project, the expenses should be divided proportionally. For example, if you are flying to another city to meet with two clients, allocate half the expenses to each client.

For multiple-leg trips, such as Home Office to Client A to Client B to Home Office, there are two common practices. One is to split the Client A to Client B leg between both clients. The other is to allocate the Client A to Client B leg to Client B. In both methods, the Home Office to Client A and Client B to Home Office legs are allocated entirely to Client A and Client B, respectively.

Dealing With Changes

Business travel is especially vulnerable to changes. Meetings are regularly rescheduled for convenience, and weather can derail same-day travel to an event.

While changeable tickets are generally less expensive, changed and canceled flights must be recorded in your books as prepaid expenses. You will also need to write down unused flight credits when they expire and make cost-allocation adjustments when a credit is used for a different client than originally planned.

For both the above reasons and because change fees often eat into any savings from booking nonrefundable flights, many companies book only refundable flights as a matter of policy.

Handling Frequent Flyer Miles

When an employee takes a flight, the airline typically adds frequent flyer miles to their frequent flyer account. Some employers view this as an extra perk for their employees, while others take the position that if frequent flyer miles were earned on a flight purchased by the company, the miles belong to the company.

The terms and conditions of most frequent flyer mile programs state that the miles belong to the individual and are non-transferable. Some airlines offer corporate reward programs where both the company and employee receive miles.

From an accounting perspective, the IRS does not consider frequent flyer miles to be taxable income, so an employer is not responsible for payroll taxes on miles awarded to employees. Additionally, frequent flyer miles are considered a reduction in price and not a cash-equivalent. You cannot claim the full cost of a flight if you used miles to pay for some or all of the cost.

Instead of creating accounting difficulties in a murky area, consider letting your heavy travelers enjoy this small perk.

Tracking Expenses

Your travel policy should require receipts for all expenses to be turned into your accounting department as soon as possible. This will give you appropriate documentation for tax purposes and ensures that your policies are being followed so that you can meet your goals of accurate reporting and controlling costs.

One of the easiest ways to do this is to utilize an expense reporting application with a mobile application, allowing employees to capture receipts, code them to the appropriate project and submit their reports electronically—even while on the road.

Outsourced bookkeeping services can support travel policies and expense reporting by assisting with accounting technology implementations and the tracking of information through programs to produce extensive reportings on all areas of travel and expenses.

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