What are expense reimbursements? Your complete business guide

Key takeaways

• Expense reimbursements pay employees back for business-related costs they've paid out of pocket, including things like travel, meals, accommodation, and office supplies.

• In Australia, reimbursements for actual expenses generally aren't assessable income for employees, but employers may have Fringe Benefits Tax (FBT) obligations depending on the type of expense.

• Airwallex Expense Management and Corporate Cards automate the reimbursement process, let you issue cards in multiple currencies, and cut processing time from hours to minutes.

From squinting at blurry Uber transaction screenshots to digging through stacks of crumpled receipts, managing employee expenses is as routine for your finance team as their morning coffee. Every transaction, whether it's a taxi ride, a client dinner, or office supplies, needs careful checking to make sure it lines up with company policies before the reimbursement goes out.

Getting reimbursements right matters for more than just your books. It affects financial accuracy, tax compliance, and whether your team feels trusted and treated fairly. Below, we'll walk through what expense reimbursements are, which expenses qualify, how tax rules apply in Australia, and how to build a policy that works.

What is an expense reimbursement?

An expense reimbursement is when a business pays an employee back for work-related costs they've covered out of their own pocket. When it's done well, employees aren't left out of pocket, and your finance team gets a clear record of business spending.

This covers costs employees pick up whilst doing their job, like travelling to meet clients, buying office supplies, or entertaining potential business partners. Here's how the process usually works:

1. Incurring the expense: An employee pays for a business-related expense, such as a train ticket or a meal during a business meeting, out of their own pocket.

2. Collecting evidence: The employee gathers all the needed documentation, usually receipts or invoices, that proves the expense.

3. Filing the expense report: The employee fills out an expense report, attaches the receipts, and notes the purpose and amount of each expense.

4. Submitting for approval: The employee sends the completed expense report to their manager or the finance team for review.

5. Reviewing the claim: The person approving it checks the submitted report to make sure the details match the receipt and that all expenses comply with company policies.

6. Processing the reimbursement: Once it's approved, the finance team processes the payment, either by adding it to the next payroll cycle or sending a separate transfer.

7. Record keeping: The finance team records the reimbursement in the company's accounting system to track business expenses for auditing and budgeting purposes.

Now that you know how the process works, let's look at which expenses usually qualify.

Common expenses eligible for reimbursement

Figuring out what can and can't be expensed can feel a bit like a minefield for employees. Every company has its own policy, but some expenses are commonly accepted across most businesses. That helps make sure employees aren't left out of pocket for essential costs they incur on the job.

Here's a simple list of expenses that are usually eligible for reimbursement:

• Travel expenses: This includes airfares, train tickets, and mileage when someone uses a personal vehicle for business purposes. Employees often travel to meet clients or attend conferences, so these costs are a standard part of many reimbursement policies.

• Accommodation: Hotel stays are reimbursable when employees need to travel away from their home base for business reasons.

• Meals: Meals during business trips or team events can be claimed, although companies usually set daily or per-meal limits, or expect spending to be reasonable.

• Office supplies: If employees buy necessary supplies like stationery or minor equipment to help with their work, those are usually reimbursed.

• Conference and training fees: Costs tied to professional development, such as attending workshops or industry conferences, are often seen as an investment in employee growth or business development and are reimbursable.

• Client entertainment: Expenses from entertaining clients, such as meals and event tickets, can usually be claimed because they're important for building and maintaining business relationships.

Being clear about which expenses are claimable helps make the expense reimbursement process simpler. Most companies write these rules down for claiming out-of-pocket expenses, and that could include a corporate card policy, so there's less confusion and better compliance. Knowing what qualifies is one thing. Understanding how those reimbursements are treated for tax purposes is another.

Are expense reimbursements taxable?

In most cases, no. If you're paying an employee back for an actual business expense they've incurred, and they have a receipt to prove it, that money isn't taxable income for them. But the details matter, especially in Australia, where the difference between reimbursements and allowances affects how both employees and employers handle tax.¹

Reimbursements vs. allowances

A reimbursement pays back the exact amount an employee spent, backed by a receipt. An allowance is a fixed amount paid whether or not that matches what the employee actually spends. Put another way, a reimbursement is paying someone back for what they spent, while an allowance is giving them a budget to use as they see fit.

Here's a clear example: if you repay your employee's A$350 airfare based on the receipt, that's a reimbursement. If you give them A$500 for the trip no matter what they spend, that's an allowance, and it may need to be reported as income.¹

This matters because the tax treatment is different. Reimbursements for actual expenses generally aren't assessable income for the employee. Allowances, on the other hand, may be taxable depending on the amount and type.

General tax treatment of expense reimbursements

When an employer reimburses an actual business expense, it isn't assessable income for the employee. The employee also can't claim a tax deduction for that same expense. You can't double-dip. Note that reimbursements may still be subject to FBT depending on the nature of the expense – speak with a tax professional for advice specific to your situation.

For example, if you reimburse an employee A$200 for a client dinner, that A$200 isn't added to their taxable income. And because they've been reimbursed, they can't claim the dinner as a personal tax deduction either.

Fringe Benefits Tax (FBT) in Australia

Whilst reimbursements aren't income for the employee, employers may still have FBT obligations. Certain reimbursed expenses, especially entertainment costs, can trigger FBT for the business.¹

The good news is that "otherwise deductible" expenses are generally FBT-exempt. These are expenses the employee could have claimed as a tax deduction if they'd paid for them personally and weren't reimbursed. Travel for work often falls into this category. That said, the rules can get complex, so it's worth speaking with a tax professional about your specific situation.

Per diem and travel allowances

Per diem amounts, the daily allowances some companies pay for meals and incidentals during travel, are only non-taxable up to the limits set by the ATO. These "reasonable travel allowance" amounts are updated each year.¹ If you pay above those limits, the excess may need to be included in the employee's assessable income and subject to PAYG withholding, unless the employee substantiates the actual expense. This is where the reimbursement versus allowance distinction matters most: reimbursing actual costs with receipts avoids this threshold issue entirely.

Watch: How Tracksuit issued 200 virtual cards in one week with Airwallex

Tracksuit is a New Zealand-born SaaS company building brand tracking software. Before Airwallex, their finance team was constrained by Wise's $150k company-wide card limit — forcing them to nervously watch limits in the last 10 days of every month to avoid disrupted ad spend or declined CEO travel cards.

After switching to Airwallex Corporate Cards and Expense Management, they achieved:

• 200 virtual cards issued in a single week — one subscription per card for full visibility

• Processing expenses reduced from 2 hours to 2 minutes via Xero integration

• Eliminated the $150k card limit bottleneck that previously constrained growth

How to pay expense reimbursements

You can handle expense reimbursements the old way, with paper and patience, or a better way, with technology and efficiency.

The manual approach

Historically, expense reimbursements have meant piles of manual paperwork and clunky approval processes. Employees submit paper forms, managers chase signatures, and finance teams key everything in by hand. That approach leads to delays, frustration, and often errors, and the cost of outdated reimbursements goes well beyond admin time.

The automated approach

Modern solutions give you an easier alternative that means faster processing and fewer headaches. With finance automation handling everything from submission to payment, you can cut down manual work and reduce mistakes. Employees submit expenses through an app, the system processes them with very little intervention, and payments go straight to their local bank accounts no matter where they're based. Reimbursements go out faster and with fewer mistakes.

How quickly should you reimburse employees?

To avoid office discontent, it's best to pay your team back for out-of-pocket expenses as quickly as possible. One to two weeks is a healthy timeline to aim for. With automated expense tools, many businesses shrink that to just a few days. Some even process reimbursements within 24 hours of approval.

Building an expense reimbursement policy

A clear policy cuts confusion and speeds up approvals. When employees know exactly what they can claim, how to submit it, and when they'll be paid back, you'll spend less time answering questions and chasing incomplete reports.

What to include in your policy

Your expense reimbursement policy should cover:

• Eligible expense categories: Spell out what's covered: travel, meals, accommodation, office supplies, client entertainment, and professional development.

• Spending limits: Set per-meal, daily, or per-trip caps. For example, you might set a A$50 per-meal limit for domestic travel.

• Receipt requirements: Specify that receipts are required for all expenses, or set a threshold (e.g., receipts required for anything over A$25). Receipts prove the cost, purpose, and date, and they're essential for auditing and tax compliance.

• Submission deadlines: Give employees a clear window for submitting expenses. Within 30 days of incurring the cost is common.

• Approval workflow: Define who approves what. Direct manager approval for standard expenses, and finance sign-off for anything above a certain amount.

• Reimbursement timeline: Commit to a turnaround time so employees know when to expect payment.

• Policy violations: Explain what happens if someone submits a non-compliant expense, whether it's rejected, flagged for review, or escalated.

Communicating your policy

A policy only works if people know it exists. Include it in onboarding materials, make it searchable on your intranet, and review it every year to keep it current. When the rules are easy to find, employees are more likely to follow them.

Alternatives to expense reimbursements

If expense reimbursements sound like a hassle, there's a better way, one that doesn't depend on paper and spreadsheets.

Corporate and virtual cards

Corporate cards let employees make business-related purchases using company funds directly, which cuts down the need for later reimbursements. You can set spend limits and Merchant Category Code (MCC) restrictions upfront, so you're controlling spending before it happens instead of reviewing it afterwards. Transactions are visible to the finance team in real time, which means fewer end-of-month surprises.

Virtual cards take that a step further. You can issue them instantly for specific subscriptions, projects, or one-off purchases. They can be added to digital wallets for employees or shared across teams without needing a physical card on hand.

Other methods

Company cards aren't the right fit for every business, and you may need different approaches for different employee groups. Here are some alternatives:

• Petty cash systems: Keep a small cash reserve for minor, immediate expenses. This requires detailed tracking and managing physical receipts.

• Prepaid cards: Issue reloadable cards to employees for specific spending categories, projects, or business trips. This gives you spending control without linking directly to your main company account.

• Direct supplier billing: Set up accounts with vendors you use often, so expenses like travel bookings, accommodation, or recurring purchases are billed straight to your company instead of going through employees.

• Purchase order systems: For larger purchases, employees can request approval through purchase order workflows before the expense is incurred, which allows for centralised billing and better budget control.

The right mix depends on your business size, structure, and how much control you need. Many businesses use a combination of methods as part of a broader spend management strategy.

Why businesses use Airwallex for expense reimbursements

If your finance team is still chasing receipts and approving expense reports by hand, there's a faster way. Airwallex brings together Expense Management and Corporate Cards in one platform, so you can handle reimbursements, card spending, and accounting sync without juggling multiple tools.

With Airwallex Expense Management, team members can submit expenses in any currency straight from their mobile phones. They snap photos of receipts, and OCR technology automatically pulls out the transaction details. Automated approval workflows send claims to the right people without manual handoffs, which saves your finance team hours each week.

Airwallex Corporate Cards, available in physical or virtual forms, let you issue cards to employees so expenses are charged directly to the company. You get detailed, real-time insight into every cent spent, with spend limits and category restrictions built in.

Integrations with Xero and QuickBooks automate accounting reconciliation, which reduces discrepancies and cuts down manual data entry. Tracksuit, a New Zealand-born SaaS company, issued 200 virtual cards in a single week after switching to Airwallex and cut expense processing time from two hours to two minutes with our Xero integration.

Expense management doesn't have to be slow and clunky. See how Airwallex can simplify expense management for your team.

Frequently asked questions 

What is an example of expense reimbursement?

An employee buys a A$45 train ticket to visit a client, keeps the receipt, submits an expense report, and gets the A$45 back from their employer after approval. The reimbursement covers the exact cost they incurred for a business purpose.

How do you record an expense reimbursement in accounting?

When a company reimburses an employee, the typical journal entry is: debit the relevant expense account (e.g., 'Travel') and credit Cash or Accounts Payable. This records the business cost and the outflow. If an expense was recorded when the employee submitted their claim (Dr Expense / Cr Accounts Payable), the payment to the employee closes the payable (Dr Accounts Payable / Cr Cash).

What is the difference between a reimbursement and an allowance?

A reimbursement pays back the exact amount an employee spent, backed by a receipt. An allowance is a fixed amount paid regardless of actual spending. The tax treatment is different: reimbursements generally aren't taxable income, whilst allowances may be.

What does a finance manager need from expense tools?

Finance managers need automated receipt capture, approval workflows, real-time expense visibility, role-based permissions, multi-currency support, policy controls, audit trails, accounting integrations, and mobile access. The right expense management tool should speed up processing whilst ensuring compliance and reducing errors. It should also give you clear reporting on spend patterns across teams and categories.

Sources 

1. https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/payg-withholding/payments-you-need-to-withhold-from/payments-to-employees/allowances-and-reimbursements

Disclaimer: This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.