Travel and entertainment (T&E) spending is an ongoing delicate balance in any organization – from the smallest nonprofits to the largest corporations. Each of them have their own complex set of goals, industry standards, and cultural considerations, so it’s often a delicate give-and-take conversation involved in setting up corporate T&E policies.
For instance, I recently heard about a major league pitcher who makes an average of $9,000 a pitch. When he’s on the road, it may not make sense to limit him to a $10 meal, an economy vehicle, and a Motel 6. I’m just guessing that might affect his performance and attitude on the road.
In a previous role, I worked as an outsourced controller helping other businesses set up, revise, and enforce travel and entertainment policies. As a result of my experience in diverse companies and industries, I know we don’t all operate on the same set of standards when it comes to spending. Depending on your organization and your goals, you may wish to offer a larger per diem if your employees are entertaining valued clients, or professional athletes, in a high-dollar industry.
Regardless of the organization, strictly enforcing a very tight budget can reinforce or foster a culture where employees feel like they’re not trusted. On the other hand, while you want to believe everyone will do the right thing, they are more likely to run amok when there’s no T&E policy in place. Also, it’s important to always keep in mind that T&E expenses are regulated by the Internal Revenue Service, which does not take kindly to non-compliance. Here are a few guiding standards I’ve used along the way that you can keep in mind as you build or revise your T&E policies:
- Be as clear as possible. Use specific language about what’s appropriate and what is not. Create clear guidelines and limits about what’s appropriate. For instance, if your organization will not pay for any personal car mileage within a 30-mile radius of your office, or if you require employees to choose the least expensive car rental option, say so.
- Educate employees. While you, as an executive, see the messy reasons behind each sentence in the T&E policy, not everyone understands the reasons why you’re putting them in place. Being transparent with employees increases their trust in the organization. You’re not just dictating standards you’ve pulled out of thin air — there are tax implications and IRS code to consider. Let them know why you need their receipts. People generally adhere to rules more completely and more often if they know and understand the why behind them.
- Consider a robust purchasing card program. Purchasing credit cards allow your business to control the limits for the card, including where the credit card can be used, and for how much. Say you run a trucking company and you want your drivers to be able to buy gas with a card, but not other purchases. You can dial in your purchasing cards so you never face the “what’s that expense?” situation. You can customize your business purchasing card program to best benefit your business, including choosing one with (or without) cash rewards and rebates.
- Capitalize on rewards with one vendor. Where possible, consider asking employees to use one vendor so your business can take advantage of rewards that come with volume discounts. Managing spend and rewards becomes less daunting of a task when there are fewer vendors in the fold.
- Build in flexibility. Just as I finished writing that you need to be specific about T&E limits, you should also consider telling employees how to request a waiver in advance. You might have an employee who has a lower limit on a corporate card, but is attending a tradeshow and needs extra leeway to fund booth needs at the show, along with the additional travel cost. Address these situations in your T&E policy by letting employees know how and when to request manager approval to go over their limit in advance. This will help mitigate confusion on both sides and purchasing card programs allow an administrator to easily go in and adjust limits for a specific amount of time.
Building a relevant T&E policy may involve some uncomfortable conversations but is worth it for your business to manage costs and adhere to tax code. A bit of give and take and a lot of communication with employees is a recipe to creating a positive culture with a strong policy that you can enforce and they can live with successfully.