Managing employee expenses is often more time-consuming than expected. Large businesses typically have well-staffed finance departments to handle this, freeing up owners from the hassle. However, startup owners and SMEs will likely face unprecedented challenges as they expand their teams.

Managing employee expenses includes but isn’t limited to the following:

• Financial Planning and Analysis
• Setting Budgets and Upper Spending Limits
• Expense Categories and Policies
• Managing Invoices and E-receipts
• Tracking and Monitoring Expenses
• Handling Reimbursement Claims

This is only scratching the surface.

As teams scale, expense policies must become more comprehensive, budgets more flexible, and the volume of expenses to monitor and control increases, requiring additional personnel.

To simplify this process, we’ve broken down employee expense management into a simple 8-step process with practical solutions at each stage. But first, let’s discuss why small businesses need a comprehensive system for managing employee costs.

Where do small businesses tend to get stuck?

Managing employee expenses is a lot of work for one manager or a small team. The lack of dedicated personnel can result in oversight, lack of visibility into spending patterns, and potential misuse of funds. If your business is sensitive to cash flows and compliance challenges, these problems can set you back years. Fortunately, some solutions are available for growing businesses with understaffed finance teams to streamline expense management, ensure compliance with spending policies, and eliminate potential oversight, thereby remaining competitive against businesses with more significant resources.

automated bookkeeping is one of the key solutions. Technology levels the field for entrepreneurs, making expense management more efficient and reducing stress and costly mistakes. Here’s an updated 8-step process for managing employee expenses, optimised with automated solutions for business owners in 2024.

Step-1 Set a budget for each expense category

Employee cost management begins with a fundamental step: setting transparent budgets for every expense category.

Having a predetermined budget ensures you’re not just spending but investing strategically. Picture this as building the financial guardrails for your business.

These categories include but aren’t limited to

• Salaries and Benefits
• Travel and Accommodation
• Office Supplies and Equipment
• Software and Subscriptions
• Marketing and Advertising
• Utilities and Rent
• Training and Development
• Events and Activities
• Legal and Compliance
• Insurance
• Onboarding costs
• Maintenance and Repairs

When setting budgets for these categories, it’s crucial to consider historical spending patterns, business goals, and the overall financial health of the company.

Once you’ve outlined the major expense categories and finalised your budget, you must determine the appropriate category for each expense.

For example, if you’re hiring an expat, you’ll likely encounter employee visa costs in Dubai. Contrary to intuition, this expense falls under the legal and compliance category, not travel.

You can tailor the list to fit the specific needs and nature, regularly review, and adjust the budget as necessary.

Step-2 Make sure you’ve established clear expense policies

This step is about laying down the ground rules. When it comes to creating expense policies, clarity is your best partner. Clear expense policies mean more than just words on paper. They are the backbone of responsible financial behaviour within your organisation.

A concise and 100% transparent policy will help you create a foolproof roadmap for your team, where every member understands the do’s and don’ts of spending.

Your expense policy should include the following:

• Expense categories: As mentioned above,
• Payment methods: Accepted payment methods and currencies.
• Reimbursement process: How employees can claim the amount spent for business purposes.
• Claim limits: If the company reimburses a partial amount for a particular expense.
• Dispute resolution process: If an employee wants to dispute a claim.
• Communication guidelines: The timeliness and transparency of communication between departments regarding business expenses.
• Spending rules and limits: Upper limits for various expense categories and a list of prohibited expenses.
• Approval process: Process for obtaining pre-approval and cash advances for expenses.
• Documentation requirements: Specify the documentation needed for each expense, such as receipts and invoices.
• Compliance with laws and regulations: Ensuring adherence to regulatory practices for reporting and auditing.

Step-3 Implement technological solutions to automate your process

Many businesses fail to gear up at this stage and thereby miss out on the benefits of enlisting the present-day superhero of managing business operations – Technology.

Expense management software, automated bookkeeping software, and corporate prepaid cards are just a few tools that can simplify time-consuming and complicated procedures such as approvals, reimbursements, accounting, and reconciliation.

The result: Owners can save hours spent tracking and approving invoices manually. But the benefits don’t end there.

Solutions like Xpence’s virtual prepaid card have been proven to

• Improve control over spending.
• Improve the security of transactions.
• Improve accuracy and monitoring.
• Save time and stress.

Xpence’s virtual prepaid card or online debit card lets you issue unlimited virtual cards for employees with spending limits, invoice tracking, and live monitoring features with an incredibly user-friendly interface.

And if that wasn’t good enough, setting up takes almost no time. All you need to do is fill out a form and open your account.

To try out this next-generation online debit card, apply here.

Step-4 Shortlist your vendors

Here’s where your business acumen comes into play. Another method of controlling employee expenses is to control the vendors they purchase from.

You can research and negotiate with vendors to root out the most cost-effective providers of products, subscriptions, and services for your specific business needs. Then, create a shortlist of pre-approved vendors for your employees to buy from.

Restricting purchases to a specified group of vendors makes it easier to maintain costs at previously budgeted levels and possibly enjoy a discount since you’ll bring bulk business to your vendors.

Step-5 Centralise subscription monitoring

Modern SaaS tools are a godsend for companies with budget or location constraints. But staying on top of all recurring subscriptions and variable costs, if any, can be a headache.

Consider this scenario: You might have multiple teams using different project management tools, each with its own subscription. Centralising the monitoring of these subscriptions enables you to identify redundancies, negotiate better deals, and ensure that every subscription aligns with your business goals.

Centralisation is the secret sauce that brings efficiency to subscription management. Instead of dealing with a scattered array of subscriptions across departments, centralisation allows you to have a consolidated view.

This close view not only streamlines the monitoring process but also facilitates better decision-making in the long run.

Xpence’s virtual prepaid card can be integrated with multiple platforms, allowing users to take control of all of their business spending in one place.

Step-6 Understanding employee benefits UAE

Controlling employee expenses is undoubtedly essential, but it doesn’t do much to help businesses retain their best employees in the long term.

It’s important to be aware of the benefits employees are entitled to under labour law, ensure adherence, and use them wisely. Consider employee benefits as an investment rather than a mere expense.

Customise benefits to fit your staff’s needs and focus on win-win solutions. This will align benefits with your business goals and enhance your cost-management strategy.

Step-7 Conduct regular expense audits

Regular expense audits are not about catching mistakes but preventing them. Instead of waiting for issues to surface, it’s far more prudent to identify discrepancies, errors, or areas for improvement proactively.

Unchecked spending increases the risk of fraud. Unclaimed or unapproved expenses can accumulate over time, even if small. Regular audits and renegotiating expense policies with employees are crucial for adapting to changing circumstances and ensuring financial strategies stay on track.

Step-8 Seek professional guidance to adjust expense strategies

Once a team grows large enough, employee expense management can get far too overwhelming for founders. At this juncture, bringing a financial controller into the fold is crucial.

They specialise in complex financial duties such as financial planning, preparing budgets and expense policies, and ensuring the corporation follows tax laws. In a larger company, financial controllers have even more responsibilities. They oversee the creation of detailed financial reports and audits. They also plan long-term financial strategies.

Financial controllers work in varying capacities. If you can’t hire them full-time, you can hire them on a contractual basis or ask for a consultation. It depends on the size of your problem.

Final thoughts

Employee cost management is not easy, but it should never be more complicated than it has to be. Businesses with ambition and long-term goals need to consider their financial health regularly.

Depending on the nature of the company, employee spending might have the most significant bearing on financial health and, therefore, should be a top concern.