Expense reimbursement and travel policy

Expense reimbursement may look like an administrative detail, but it is one of the points where employer and employee are most exposed with the tax authorities. The underlying question is always the same: is that payment a reimbursement of an expense or is it disguised salary? The answer determines whether it is taxable, whether it generates social security contributions and whether it must be shown on the salary certificate. A good expense policy puts things in order once and for all.

A reimbursement is not salary

The principle is simple: the reimbursement of an expense incurred in the company’s interest is not the employee’s income. If a staff member advances the cost of a train ticket for a business trip and is reimbursed against a receipt, they have earned nothing: they have simply been held harmless for a company cost.

The problem arises when the reimbursement does not correspond to a real expense or is not documented. In that case the authority can reclassify it as salary, with taxes and social security contributions payable by both parties, plus possible back-charges.

Actual expenses and lump-sum expenses

There are two ways to reimburse:

actual expenses: the amount actually spent is reimbursed, against a receipt (invoice, receipt, ticket). It is the most solid method and poses no problems if the expense is business-related.
lump-sum expenses: a fixed monthly or annual amount is granted to cover recurring expenses (representation, small expenses, use of a private vehicle) without a receipt for each individual item.

The lump sum is convenient but delicate: without clear rules it risks being seen as a salary component. For this reason, for lump sums of some significance, an approved policy is used.

The approved expense policy

An expense policy is an internal document that defines which expenses are reimbursable, within which limits and with which lump sums. If submitted to and approved by the cantonal tax authority, it offers a decisive advantage: the lump sums provided for are recognised as reimbursements and not treated as income, without having to justify each individual expense.

A typical policy governs:

travel: transport, overnight stays, meals away from base;
vehicle: use of a private vehicle for work purposes and the related mileage allowance;
representation and small recurring expenses;
limits and the procedure for approving expense claims.

The salary certificate must indicate whether an approved policy exists, and actual and lump-sum reimbursements must be shown separately. Consistency between the policy, the pay slips and the certificate is what holds up in the event of an audit.

Travel: the practical rules

For travel it is best to establish in advance:

what is reimbursable (public transport, travel class, hotel category, meal cap);
how it is documented (expense claim with receipts, submission deadlines);
when an allowance applies (distance or duration thresholds, trips abroad);
the treatment of the private vehicle relative to any company car.

Written and uniform rules avoid internal disputes and make reimbursements defensible before the tax authorities.

Mistakes to avoid

Paying significant lump sums without an approved policy.
Reimbursing expenses without a receipt or that are not business-related.
Confusing a company car (taxable benefit) with the mileage reimbursement of a private vehicle.
Not reporting reimbursements in the appropriate boxes of the salary certificate.
Using reimbursements as a tool to reduce the taxable salary: this is exactly what audits look for.

A well-designed reimbursement is neutral from a tax and contribution standpoint. An improvised reimbursement is a latent risk that surfaces at the first audit.

How we help you

SIH ONE’s People division sets up expense and travel policies, handles their approval with the cantonal authority and aligns expense claims, pay slips and salary certificates. Talk to the People division.