Imagine being a small business owner in Canada, brimming with excitement and passion for your venture. You're making a difference, creating jobs, and...
How you can optimize your company’s expense management (and spend the time elsewhere)
If you're a small business owner in Canada with employees, you're no stranger to the world of expense receipts
If you're a small business owner in Canada with employees, you're no stranger to the world of expense receipts. On one hand, they serve a valuable purpose – they allow your team to wine and dine clients, attend conferences, and purchase necessary tools without dipping into their own pockets. Plus, the company can claim back the sales tax – GST, HST, PST. However, the administrative side of expense receipts can be a real headache. Lost receipts, incomplete records, and the sheer tedium of processing them all can bog down your financial operations. What's worse, mistakes in managing employee expenses can lead to hefty penalties from tax authorities.
However, fret not! There's a better way to streamline expense management for your small business. In this guide, we'll unravel the complexities, presenting a straightforward approach to handling employee expenses that's tailored to the needs of small business owners.
Chapter 1: Deciphering Employee Expenses
Before we plunge into the details, let's understand what we're dealing with here. Employee expenses refer to the costs incurred by your staff while performing their professional duties. These expenses need to be reimbursed, ensuring that your employees aren't bearing the financial burden of work-related activities. However, this reimbursement process comes with a set of rigid rules and requires valid expense reports to substantiate these expenses to tax authorities.
In Canada, valid business expenses encompass:
- Travel costs
- Hotel or accommodation costs
- Food and drink costs
- Equipment costs
- Clothing costs required for the job
For instance, if you own a construction SME, expenses related to work attire, such as overalls and safety gear, count as professional expenses and are reimbursable.
Chapter 2: Modes of Reimbursement
Expenses can be reimbursed in two primary ways: actual cost or fixed allowance. Employers have the flexibility to choose the most suitable method and even tailor it based on employees' roles. However, it's crucial to maintain a consistent expense policy across the board to avoid complications.
"Actual cost" reimbursement involves repaying the exact amount spent, penny for penny, supported by proof of purchase receipt.
On the other hand, "per-diem" reimbursement entails a fixed daily rate to cover meals, accommodation, and kilometer-related travel expenses.
Chapter 3: The Essentials of Expense Management
Now that you have a grasp of employee expenses and reimbursement methods, let's dive into the essentials of streamlined expense management for your small business.
Record Expenses in the Purchasing Log:
Maintain a clear record of expenses in the purchasing log, capturing essential details like date, amount, invoice number, and relevant expense category.
Separate deductible and non-deductible expenses:
For example, tips are considered a non-deductible expense for your business but your employee must be reimbursed for it. For complete guide on eligible business expenses see Canada Revenue Agency guide here.
Choose the Right Expense Category:
Assign each expense to the appropriate category based on its nature, aligning with the standard expense categories.
Claiming Sales Taxes on Expenses:
Understand the conditions for reimbursement of GST/HST/PST on expenses and ensure compliance with invoicing and record-keeping requirements.
Chapter 4: Embracing Automation and Efficiency
Now that you're well-versed in the intricacies of employee expense management, let's explore practical ways to simplify the process for your small business.
Establish a Clear Expenses Policy:
Craft a comprehensive expenses policy that defines limits, submission deadlines, reimbursement procedures, and necessary documentation, promoting order and efficiency.
Leverage Corporate Cards:
Explore the benefits of corporate cards that come with expense management software to eliminate the need for traditional expense reports, providing a seamless and controlled payment solution. Fuse Financial offers physical and virtual prepaid credit cards –
Sign up in less than 5 minutes!
Automate Expense Reporting:
Utilize digital tools that enable employees to capture and submit receipts effortlessly, automating the expense reporting process and ensuring compliance. Fuse Financial streamlines expense management for you. Your employees can snap a picture and upload the receipt, separate the tip and taxes in a couple of simple clicks.
Navigating employee expenses doesn't have to be a bureaucratic maze for small business owners. By embracing efficient reimbursement methods, maintaining a well-defined expenses policy, and utilizing automation tools, you can simplify the process and focus on what truly matters—growing your business. Cheers to streamlined expense management!