Expense reports are where good people and finance teams annoy each other the most. The employee paid for a client lunch with their own card and wants the money back this month. Finance gets a photo of a crumpled receipt three months later, with no idea who was at the lunch or why.
Neither side is wrong. The problem is that nobody wrote down the rules, so every report gets argued one at a time.
Key takeaways
- A good expense approval process has two parts: a short written policy and a fixed path from submission to payment.
- The policy has to answer six questions: what is eligible, what proof is needed, how fast to submit, how mileage and per diem work, who approves and how fast people get paid.
- Under an IRS accountable plan, reimbursements are not wages, but only if expenses have a business connection, are substantiated within a reasonable period and any excess is returned.
- The manager checks the business reason, finance checks the policy. Do not ask either to do the other's job.
This guide explains how to build an expense approval process for a team of 10 to 300 people: what the policy should say, the IRS rules that shape it, the approval steps, and the problems you will run into. It is a practical guide, not tax or legal advice. Confirm the details with your accountant, especially if you operate in several states.
What an expense approval process is
An expense approval process is the path a reimbursement request follows from "I paid for this" to "the money is back in my account". It usually covers out-of-pocket spending (travel, meals, mileage, small purchases) and, in many companies, corporate card charges that need a receipt and a reason.
It is different from a purchase approval. A purchase is approved before the money is spent. An expense is usually reviewed after, which is why the policy matters so much: the employee needs to know the rules before they spend, because approval comes too late to change anything. If you also need to approve spending in advance, our guide to the purchase approval workflow covers that side.
What your expense policy must say
Most expense disputes come from a policy that is vague or missing. A one-page policy that answers these questions prevents most of them.
Eligible expenses
List what the company pays for and, just as important, what it does not. Typical eligible categories: airfare, lodging, ground transportation, business meals, mileage, conference fees, and small supplies. Typical exclusions: personal entertainment, alcohol above a limit, upgrades, traffic and parking fines, and anything for family members.
Be specific where people disagree. "Reasonable meals" invites a debate; "up to $60 per person for a client dinner" (an example) does not.
Receipts
State what proof is required. A receipt should show who was paid, the amount, the date and what was bought. For business meals, also ask who attended and the business purpose.
The IRS rule in Publication 463 is a useful floor: documentary evidence such as receipts is generally needed, but it is not required for an expense (other than lodging) under $75, or for transportation where a receipt is not readily available. Lodging always needs one. Many companies simply ask for a receipt for everything, which is simpler to explain and to check.
Submission deadline
Pick a deadline and enforce it. Thirty days after the expense, or the end of the following month, are common choices. The IRS gives a safe harbor that is worth knowing (see the next section): expenses accounted for within 60 days are treated as accounted for within a reasonable period.
Mileage
If employees drive their own car for work, say how mileage is reimbursed. Most companies use the IRS standard mileage rate. Do not hard-code the number in your policy. The IRS publishes the rate every year and has occasionally revised it in the middle of a year (it did so for July 2026). Write "the current IRS standard mileage rate" and link to the IRS page instead.
Also say what counts as business miles. The normal commute between home and the usual workplace does not.
Per diem
Some companies pay a fixed daily amount for meals (and sometimes lodging) instead of reimbursing actual receipts. Many base it on the federal per diem rates published by the GSA, which vary by city and are updated each federal fiscal year. Per diem saves everyone from collecting meal receipts, but the employee still has to show the dates, place and business purpose of the trip.
Who approves, and how fast people get paid
Name the approvers by role and amount, and commit to a payment timeline, such as "with the next payroll" or "within 10 business days of approval". People tolerate a strict policy much better when the money arrives on time.
IRS accountable plan basics
How you reimburse expenses has a tax consequence. Under IRS rules (Publication 463 and Publication 15), reimbursements paid under an accountable plan are not wages: they are not reported as pay and are not subject to income tax withholding, Social Security, Medicare or FUTA taxes. Reimbursements under a nonaccountable plan are treated as wages.
To be an accountable plan, your arrangement must require all three of these rules:
- Business connection. The expense was paid or incurred while performing services as an employee.
- Substantiation. The employee adequately accounts for the expense within a reasonable period of time.
- Return of excess. The employee returns any advance or allowance that is more than the substantiated expenses, within a reasonable period of time.
"Reasonable period" depends on the facts, but the IRS treats these timeframes as reasonable: an advance received within 30 days of the expense, expenses accounted for within 60 days, and any excess returned within 120 days. Alternatively, the employer can send a periodic statement, at least quarterly, asking employees to return or account for outstanding advances, and they comply within 120 days.
What this means for your process: your expense report is the "adequate accounting". The receipts, dates, places and business purpose it collects are what keep reimbursements out of payroll taxes. A deadline in the policy is not bureaucracy, it is part of the plan.
One more state-level note: some states require employers to reimburse necessary business expenses. California, for example, does so under Labor Code section 2802. Check the rules where your employees work.
The expense approval process, step by step
The flow that works for most small and mid-sized teams is a straight line with four steps.
- Employee submits. A line-item table (date, category, amount, receipt) with a calculated total, the business purpose, the project or cost center, and any advance already received.
- Manager approves. The manager answers one question: was this spending for a real business reason? They are the only one who knows whether the trip to Denver was actually for the client meeting.
- Finance reviews. Finance checks the policy: receipts present, amounts within limits, correct category, no duplicates, mileage at the current rate. Finance can send the report back for a missing receipt instead of rejecting it.
- Payment. The reimbursement is paid by ACH or with payroll, and the report is closed with the payment date.
Keep the roles separate. Managers are bad at checking receipts, and finance cannot judge whether a dinner was necessary.
If the amounts vary a lot, add a second approver above a threshold, such as the department head for reports over $2,500. Our guide to approval limits by amount shows how to set those tiers.
An expense policy template you can copy
Replace the example values with your own. Every row is a decision someone will otherwise make case by case.
| Policy item | Example rule |
|---|---|
| Eligible expenses | Travel, lodging, business meals, mileage, conference fees, small supplies under $100 |
| Not eligible | Personal entertainment, fines, upgrades, family member costs, alcohol over $30 per person |
| Receipts | Required for every expense, showing vendor, date, amount and items |
| Business meals | Attendees and business purpose required, up to $60 per person |
| Mileage | Current IRS standard mileage rate, commute excluded, start and end address required |
| Per diem | Federal GSA rate for the destination, prorated on travel days |
| Submission deadline | Within 30 days of the expense |
| Advances | Account for within 60 days, return any excess within 120 days |
| Approvers | Manager for all reports, department head above $2,500, finance review always |
| Payment | By ACH within 10 business days of final approval |
| Exceptions | Written approval from finance before the expense |
Common problems and how to fix them
Missing receipts. Ask for the photo at submission, not at review. A missing receipt affidavit (a signed statement of what was bought, when and why) is a reasonable fallback for the occasional lost receipt, but cap how often it can be used.
Late reports. People submit late when the process is painful. Let them submit from a phone the day of the expense, and remind them about open advances before the 60-day mark.
Duplicates. The same hotel bill submitted on two reports, or a corporate card charge also claimed as out of pocket. Finance should check date, vendor and amount across reports, and the card statement should be reconciled against expense claims.
Personal expenses mixed in. A family dinner on a business trip, a weekend extension at the hotel. The fix is a clear "not eligible" list and a manager who actually reads the business purpose. When it happens, ask for the personal part to be removed, not for the whole report to be rejected.
Approvals that sit for weeks. A report waiting on a manager who travels is the most common complaint. Give the approval step a due date, remind the approver, and escalate or let a delegate approve while they are away.
Frequently asked questions
How long should expense report approval take?
For a routine report, the manager should decide within one or two business days and finance within a few more. Many companies commit to paying within 10 business days of submission. If approvals regularly take longer, add due dates and reminders to the approval steps.
Who should approve an employee's expense report?
The employee's direct manager approves the business reason, and finance reviews compliance with the policy. Add a second approver, such as a department head, above an amount you choose. Nobody should approve their own expenses, including executives: their reports go to someone else, often the CFO or a board member.
Do I need receipts for expenses under $75?
Under IRS rules, documentary evidence is generally not required for an expense other than lodging under $75, as long as the other details (amount, date, place and business purpose) are recorded. Your company can still require receipts for everything, and many do.
What happens if an employee does not return an expense advance?
Under an accountable plan, any excess that is not substantiated or returned within a reasonable period is treated as paid under a nonaccountable plan, which means it becomes taxable wages. That is why the policy should set a clear deadline to account for advances.
Running it in Easyflow
The Expense reimbursement process in the gallery starts with the expense report itself: a line-item table (date, category, description, amount) with a calculated total, the business purpose and the receipts, which can be photos taken on a phone. The manager approves and adds the cost center, finance checks the receipts and pays, and the employee confirms the money arrived. For trips, Travel request and Travel advance and expense report connect the advance to the final accounting. You can add approval limits by amount for a department head above your threshold, approvers can decide from the email (a confirmation page opens first), finance can send a report back for a missing receipt, and each step can have a due date with reminders and escalation. Every report keeps a full timeline you can export to CSV or PDF.
If suppliers send you invoices too, read our guide to the invoice approval workflow.