Reimbursement

A reimbursement pays an employee back for money they spent on the company's behalf: a client lunch on a personal card, a taxi paid in cash, supplies bought during a site visit. It is not pay; it restores what the employee spent.

What makes it valid

For a reimbursement to be treated as a repayment rather than extra salary, it has to match a real business expense and be supported. That generally means a receipt showing the amount, date and merchant, a business purpose and an approval. In Canada, reimbursements of expenses incurred for the employer's benefit and backed by receipts are generally not taxable to the employee. In the US, the same result depends on meeting the IRS accountable plan rules.

Reimbursement versus allowance

A reimbursement repays actual costs, receipt by receipt. An allowance pays a set amount, such as a monthly phone allowance or a per diem, regardless of what was spent. Allowances are simpler but have their own tax tests: in Canada they generally must be reasonable, and some fixed allowances are taxable.

Paying it

Reimbursements are usually paid by direct deposit, either separately or with payroll. Companies that pay within a few days of approval hear far fewer complaints about their expense process than those that batch reimbursements monthly.