A travel allowance can be an effective way to manage employee travel expenses and manage costs for the employee.
When employees travel for business, there are myriad expenses, from hotels to taxis or ride-sharing services. Using a travel allowance can help give travelers flexibility and control while increasing compliance with tax regulations.
What Is a Travel Allowance?
A travel allowance is compensation paid by an employer to employees to cover expenses incurred when traveling for business. In addition to lodging and transportation, travel allowances are typically used for airfare, meals, and other expenses related to business travel. It is business travel compensation, provided either before or after travel is completed.
Managing business travel compensation can be complex and hard to manage. The way businesses handle travel compensation is changing, as leaders look to implement tools that aid travelers and companies alike.
Technology is transforming how companies manage all aspects of employee travel, including the creation and coordination of travel allowances.
Types of Travel Allowance
There are many types of travel allowances, which can be given upfront or based on a reimbursem*nt schedule. Here is a look at some of the most common.
Fixed Travel Allowance
A fixed travel allowance is a flat rate that is offered to an employee, irrespective of the level of expenses incurred. Employees are responsible for managing their travel expenses and determining how to use the money best to accommodate their needs. It is commonly used with employees for short trips or who travel infrequently.
Typically, with a fixed allowance, if the employee spends less than the allocated amount, the employee can keep the difference. If the employee spends more, they are responsible for making up the difference. Businesses using fixed travel allowance should work with their tax professional to understand the implications of this practice.
Daily Travel Allowance
Also called a per diem, a daily travel allowance is an amount used for each day of travel and can be used for lodging, transportation, meals, and other travel expenses. Typically, a traveler will reconcile the per diem by submitting an expense report and receipts. The traveler will be reimbursed for any expenses they spent in excess and will return money that was unspent.
Travel Reimbursem*nt
This travel allowance requires the traveler to submit receipts for actual expenses incurred, which are then reimbursed. This process can be cumbersome and time-consuming for the traveler. If reimbursem*nt is not done in a timely manner, it can be burdensome for the employee, who is essentially lending money to the company. Fortunately, there are technologies available today to simplify this work.
Mileage Allowance
This type of allowance pays the employee for miles traveled on business. It is typically used when employees use their own car for business-related travel. Technologies can tracking and reimbursing for mileage simpler and more accurate.
Methods for Calculating Travel Allowances
When using travel allowances as part of a corporate travel program, one key consideration is how the travel allowances are calculated.
The process often has to consider the distance traveled and the time spent traveling. Here is one way to calculate a travel allowance.
Location and Days of Travel
Start by determining the location of the traveler at midnight on each day of travel. A day of travel is defined as a 24-hour period an employee is conducting business while traveling.
The day of travel ends when the next day starts or they return home from a business trip to their home or office. For example, if an employee leaves for a trip at 4 p.m., the first day of travel is from 4 p.m. that day until 4 p.m. the next.
Lodging
Lodging allowances are provided based on whether an employee spends the night in accommodations other than their own home. Typically, lodging allowances are based on the location and the current price rates for various hotel categories, based on company preferences for the level of hotels allowed.
Unlike with other categories, usually lodging is an either/or determination. Employees are either allowed the lodging allowance or not based on the circ*mstances of the trip.
Meals
Like with lodging, meal allowances are usually based on the prevailing costs of meals in each location. It assumes that a traveler will have three meals a day.
Typically, a meal allowance covers both meals and incidentals, such as snacks. Often it is prorated based on the time in any given day a traveler is on the road.
The meal allowance may also be reduced if there are meals provided as part of the work travel, such as part of a conference registration fee or transportation ticket.
Managing Travel Allowances
Managing travel allowances is a complex task. Here are some tips on how to effectively implement and manage a program:
- Develop a Clear Policy. Travelers need to understand the specifics in your travel program and how allowances are used. The policy needs to spell out, for example, what expenses are allowed and not allowed and the ways in which allowances are calculated. Transparency is essential to ensure all employees understand how travel expenses are covered
- Consider Incidentals. Business travelers face many complexities and challenges. You want a policy that makes it easy for travelers to navigate while on the road. Be sure your policy covers costs that may arise, including parking, fuel, tips, laundry services, printing, internet fees, and luggage check fees
- Analyze Data. You need a system in place that collects and reports on travel data to allow you to better understand trends, shifts and challenges. With visibility into your travel program, you can make timely, well-informed decisions
Developing Travel Allowance Policies and Guidelines
If your company wants to develop a travel allowance policy, where should you begin?
The policy should be rooted in a broader travel policy which should consider the following:
- Scope. What aspects of business travel will your policy cover?
- Coverage. Determine which elements of travel the policy will cover, such as air travel, lodging, meals, incidentals, and ground transportation
- Reimbursem*nt Types. Will your company use travel allowances and, if so, which types?
- Participation. How will policies be determined? Be sure to include staff from human resources, finance, and departments that frequently travel, in determining the policy
- Safety. Be sure your policy provides protection for employees while they are traveling
- Expense Reporting. Develop tools or adopt that will be used for the reporting of travel expenses, with an emphasis on scalability, technology integration, and ease of use
Technological Advancements in Travel Allowance Management
Technology is changing the way companies manage business travel. There are powerful platforms available today that integrate travel policies, allow for the booking of travel and itinerary management and provide robust data collection and travel.
Employees need access to easy-to-use tools that allow for the recording of receipts and other transactions, let them reconcile expenses and generate expense reports, and simplify approvals and routing.
SAP Concur solutions can provide companies with integrated business travel, expense, and invoice solutions. With SAP Concur solutions, companies can book travel, manage expenses, integrate with business systems, manage invoices, and more.
Learn more about how SAP Concur solutions can simplify your travel management.
