Efficiently managing business expenses is key to a company’s financial health. However, as a business owner or HR professional, you may have various costs and too many employees to be able to manage that easily. For that reason, you need efficient policies, methods, and software systems to keep business expenses documented and under control and simultaneously keep revenue up.
With that in mind, it isn’t surprising that Business Market Insights found that “the Asia-Pacific travel and expense management software market is expected to grow from US$ 780.20 million in 2022 to US$ 1,333.96 million by 2028.”
In this article, we’ll help you grasp expense management for HR, its types, benefits, practices, and software options so that you can manage your business finances efficiently.
What is expense management?
Simply put, expense management is the process by which you track, process, pay, and audit expenses that arise while your employees are performing their duties. Think travel, stationary, sustenance, and professional license fees.
The process is composed of policies and methods. To better visualize it, let’s look at the typical process for employee expense reporting. On behalf of the company, an employee makes a purchase related to the job.
To submit their claim, they must:
- Submit expense reports and reimbursement claims to HR. An expense management platform can guide your employees through the expense form filling and submission process.
- Claims are then assessed and either accepted or rejected. You can approve or reject them based on the pre-established guidelines in your expense policy.
- Payments are scheduled and then made. Scheduling payments helps streamline the process and ensure timely payments.
- Keep a copy of the records and receipts for compliance purposes. These documents help you meet legal, regulatory, and taxation authority requirements.
What are the types of HR expenses?
Understanding the following expense types facilitates expense management for HR purposes, enabling you to set a policy that details the approved business expenses.
Compensation and benefits
Calculating compensation and benefits constitutes the bulk of your HR expenses, so tracking them is non-negotiable. It also helps you calculate the cost of employment and determine future HR budgets.
Compensation and benefits include:
- Employee salaries
- Life insurance
- Health insurance
- Paid leave
- Overtime pay
- Incentives
- Bonuses
- Retirement plans
Recruitment and onboarding
Recruitment and onboarding costs help you pick the best candidates for your open positions and give them a positive first impression and efficient onboarding process, which increases retention rates.
Recruitment and onboarding costs can easily get out of control (if you don’t track them efficiently) as you spend on the following:
- Job advertising
- Marketing campaigns
- Interviewing and screening candidates
- Background checks
- Onboarding
- Remote employee office setup
Training and development
Growth opportunities are a key component of employee satisfaction and high retention. They also improve productivity and return on investment as you upskill your workforce, and tracking them allows you to compare the investment to its long-term return.
Training and development expenses include the following:
- Onboarding training
- Addressing skills gaps
- Certified courses
- Workshops
- Implementing learning systems
- E-learning transition
Performance management
According to Investopedia, “The goal of performance management is to create an environment where people can perform to the best of their abilities and in alignment with the organization's overall goals.” Naturally, that costs money that you must manage as you invest in areas like:
- Performance reviews
- Evaluation
- Goal management
- Data integration
Employee Relations
Employee relations management ensures that employees feel appreciated. It’s composed of several aspects, including team building and coaching, labor relations, employee engagement, a positive work environment, and building and managing relationships.
Still, how do you attain that? You can use non-work-related events, team birthday parties, and team-building activities, which mean travel and entertainment expenses. However, the lines between personal and business expenses here get easily blurred, which calls for regulations and clearer policies.
HR administration
HR administration costs are the budget portion allocated to running an HR department. These are incurred for HR communications and general HR administration, as you need to invest in software platforms that support various operations of expense management for HR. You must also track these investments to determine if they’re worth it.
Technology and tools
Since we’ve just mentioned software solutions, technology enables you to streamline HR processes and automate many of the operations related to expense management for HR. Upgrading and investing in them is a good idea, as is tracking these expenses. You might invest in the following:
- HR information systems (HRIS): Such a software solution enables you to collect, process, store, and manage an organization’s employee information.
- Payroll and benefits system
- Remote work platform
Read next: HRIS ROI Calculator: Does Investing in HRIS Pay Off?
Why is expense management for HR important?
Understanding the value of expense management for HR is just the incentive you need to give it your all. It also gives you a realistic overview of how managing expenses efficiently can alter your business flow, so consider the following benefits:
Cost control and cash flow management
Via expense management for HR, you can see your cash flow reflected in your level of working capital, which is composed of stock, customer payments, and supplier and creditor payments and documented in invoices.
The documentation of such data gives you intel about all the expenses that your employees incur and their amounts. This way, you’ll budget better and have a consistent flow of money to pay expenses, expected and unexpected.
Compliance
A policy relating to expense management for HR details employee expense reporting and employee expense tracking procedures that comply with local laws and regulations and company rules. For instance, it covers tracking deductible expenses, managing GST or VAT, and drafting reports for tax filing.
Using expense report tracking HR software, you can automate compliance checks, which ensures all expense claims are legitimate. Then, you can enjoy a lowered risk of compliance breaches and penalties.
Learn more: Comprehensive Guide to Global HR Compliance
Accuracy and efficiency
Clear policies and procedures improve the accuracy of expense tracking and the efficiency of submitting receipts, which gives you more financial control and helps you make more informed financial decisions, increasing operational efficiency. Expense management software makes this even more accurate and efficient.
Additionally, report analysis can help you plan and predict future expenses, which helps with efficient expense management for HR.
Transparency and accountability
A solid expense management policy enhances the visibility and transparency of expenditures. With all financial transactions visible, you can hold employees of all levels accountable for their spending activities.
Strategic decision-making
The insights into spending are made possible by the increased visibility and generated by the expense analytics. These help you make informed, strategic decisions and forecast business expenses.
Expense Management for HR Best Practices
Apply the following practices for HR expense management to make the process seamless and protect business revenue.
1. Establish clear reimbursement policies and procedures.
Establish reimbursement policies and procedures and write them in clear language to ensure financial accuracy and tax compliance and promote employee satisfaction.
To illustrate, you should determine clear categories and detailed budgets in your expense policy and explain them. State which expenses are approved so that there’s no mixup between personal and business expenses. You can also add a guide in your employee handbook on how to claim expenses and ensure the procedures are followed in case of a dispute.
2. Utilize expense report tracking HR software
As we’ve mentioned, expense report tracking HR software streamlines the expense management process, and we’ll give you a few platform recommendations later on.
When you invest in such platforms, they simplify the expense submission process, support real-time expense tracking, improve policy compliance, automate the reimbursement approval workflow, and generate analytics and reports to give the necessary financial data.
Read next: HR Software Features: A Comprehensive Guide
3. Promote employee awareness and training
Successful expense management for HR requires making employees aware of your policy and training them.
To elaborate, you should train managers in your expense management for HR policies so that they can communicate them effectively to your employees and align their team’s expenses with the company goals. Also, conduct training sessions, distribute policy manuals, and offer accessible online resources for employees.
Accordingly, they'll know how to submit expenses properly, use new expense management software tools, and fulfill policy requirements related to expense management for HR.
4. Conduct regular reviews and audits
When you run a regular review and audit cycle, you can spot discrepancies and flagged anomalies that signal potential abuse, fraud, or double entries.
Also, review the process regularly to optimize it. Use relevant key performance indicators (KPIs), such as processing time and expense-to-revenue ratios, to determine how well your expense management for HR practices is working.
5. Foster a culture of accountability
A culture of accountability drives everyone in the company, from interns to managers, to abide by your expense reimbursement policy. In case of improper filing, follow the proper procedures, and you’ll notice fewer errors, lower fraud risks, and more seamless expense procedures.
6. Consider relevant tax implications
Filing business tax returns properly is necessary for deductions and tax implications. They help you with reducing tax bills and maximizing profit. You’ll find that some employee reimbursements are taxable and others aren’t, so refer to a tax accountant to gain clarity.
On another note, categorizing expenses, which is part of expense management for HR, makes it easy to identify tax-deductible expenses so that you can file tax returns properly.
Top 4 Expense Report Tracking HR Software
Understanding what your options are when it comes to expense management for HR allows you to pick the most suited HR software for your business needs and make the most out of this investment, which is why you can pick one of the following 4 options.
Omni HR
Omni is a customizable optimized tool that enables you to control your expense management, which creates a centralized hub for expense tracking.
You can customize expense policies, create your expense forms to incorporate your company’s requirements, set rules for expense approval automation, analyze overall expenses, and integrate approved expenses in the payroll cycle.
Workday
Workday has an integrated platform for expense report submissions and approvals. Employees can submit them, and managers can approve them quickly via the mobile app. Also, the app automatically calculates driving mileage for expense reporting purposes.
Xero
Xero has tailored financial features that equip it to support the unique needs of small businesses. It supports multiple currencies, expense claims, automatic data entry, and advanced analytics, but note that the early plan offers limited invoices and bills.
Expensify
Another software that supports expense management for HR is Expensify. If you’re intent on getting real-time updates, data syncing maintains consistency across all integrated platforms and accuracy in financial records.
Like Omni, it supports automated approval workflows. It also has integration with big accounting software. But the main drawback is the inflexibility of the annual billing system.
Automate Your Expense Management with HR Tools
Expense management for HR doesn’t have to be complicated, as long as you have the right HR tools on your side.
Omni brings clarity and control to your expense management for HR, providing a single source of truth for tracking employee expenses. With our flexible expense policies set up, customize your policies and approval flows based on your unique needs. Tailor expense forms to collect information as per your policies and requirements.
Our employee self-service portal empowers employees to swiftly submit their expense claims, automatically routing them to the appropriate managers with customizable approval workflows. And our user-friendly mobile application allows for on-the-go approvals and communication, so you can manage expenses from anywhere.
If you’d like to learn more about how Omni’s all-in-one HR software automates the entire end-to-end employee lifecycle, saving People leaders from administrative tasks and increasing organizational innovation, book a demo with our team!
