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Start Hiring For FreeRecording and reimbursing employee expenses fairly is critical, yet most companies struggle to do it efficiently.
Luckily, Xero makes it simple to track expenses and reimburse staff in a streamlined, standardized way.
In this post, you'll discover the step-by-step process for recording expenses in Xero - from submitting claims to approving reimbursements. You'll also learn policies and integrations to automate the workflow, ensuring staff get paid back promptly and your financials stay accurate.
Reimbursing employees for work-related expenses in a timely and organized manner is critical for any business. Xero offers a user-friendly expense management system to streamline this process while ensuring fairness and transparency.
When employees make purchases for your business, whether it's office supplies, travel costs, or client meals, they should be fully reimbursed. Failing to do so hurts employee morale, makes recruiting more difficult, and may even violate labor laws. Recording these expenses properly is key for:
Xero takes the hassle out of expense reimbursement with features like:
This saves time for staff and finance teams while ensuring expenses are processed faster.
With Xero, employees can:
Managers can:
Finance teams can:
Xero connects the entire process so that employees are reimbursed quickly while you maintain control over spending.
If you have an accountable plan, the business expenses you reimburse to an employee are not treated as wages and not taxed. You do not report this amount with the employee's wages on Form W-2; you should record the amount in box 12 of Form W-2, with code L.
To record reimbursed employee expenses in Xero:
Have the employee submit the receipt for the expense in Xero. They can upload the receipt directly or email it for you to add.
Review the expense receipt and confirm it is a valid business expense.
Approve the expense report in Xero so it moves to the next stage.
When you reimburse the employee, record it against their name in Xero as a bank payment.
Add the appropriate expense account it should be matched to, like Travel, Office Supplies, etc.
The payment to the employee offsets the expense account, keeping your reporting accurate.
This allows you to keep detailed records of expenses and reimbursements in Xero without needing to add tax. It also gives you oversight and approval control, ensuring compliance with your policies.
The key things to remember are:
Following this process correctly allows you to reimburse employees fairly while staying tax compliant.
When accounting for employee expense reimbursements in Xero, there are a few key steps to follow:
First, review the receipt and ensure the expense is appropriate and billable to the client based on your policies. Some common valid expenses include:
If the expense seems unreasonable or unrelated to work, consider denying the reimbursement request.
Require employees to submit receipts for all purchases made. This provides proof of payment and makes accounting easier. In Xero, employees can upload receipts directly when submitting expenses for approval.
Log in to Xero and go to Accounts Payable > Expenses. Click "Add Expense" and select the employee. Enter the expense details, category, amount to reimburse and attach the receipt.
Submit the expense report in Xero to route through the appropriate approval workflow you've set up. Once approved, Xero will record the expense as awaiting payment.
Once fully approved, you can pay employees directly through Xero's integrated payment processing. The software will automatically reconcile these transactions.
Following this streamlined process in Xero takes the hassle out of expense reimbursements so you can pay employees quickly and accurately.
You can reimburse your employees for their expenses through payroll. However, if employee expenses qualify for the accountable plan, you must ensure you don't tax them. Here are some tips:
Record Employee Expenses properly in Xero by having employees submit receipts and documentation. Add each expense line by line instead of in one lump sum.
Have employees Submit for Approval in Xero with notes on the business purpose. As the approver, review carefully to ensure the expenses qualify under IRS rules.
Once approved, Reimburse Staff Fairly by processing the reimbursement through payroll. Be sure to separate the reimbursements clearly from regular earnings on pay stubs.
For qualifying expenses, Pay Online directly to the employee's bank account without tax withholdings.
Keeping diligent records and processing reimbursements properly is key to staying compliant. With some care taken on the administrative side, you can simplify things for staff and make sure they are reimbursed fairly under accountable plan rules.
To set up employee expenses in Xero, follow these steps:
When an employee makes a purchase for your business, here is the process to enter and reimburse the expense:
Following this streamlined process allows you to reimburse staff fairly while keeping accurate financial records of employee expenses. The automatic receipt capture and integrated payment processing through Xero saves your accounting team significant time.
This section provides step-by-step guidance for employees to add expense claims in Xero, including details on required fields, attaching receipts, and submitting for approval.
To start a new expense claim in Xero:
This will open a blank expense claim ready for you to fill in the details.
For each expense item on your claim, you need to provide:
Provide as much detail as possible to ensure your claim can be processed smoothly.
To back up your expense claims, you will need to provide scanned or photographed receipts showing proof of payment.
To add a receipt in Xero:
Submit all applicable receipts to support your expense claim in Xero.
Once all expense details and receipts have been added, you can submit your claim for approval:
You will receive a notification in Xero once your claim is approved and processed for payment.
Following these instructions will ensure you fill out accurate, compliant expense claims in Xero that can be quickly approved. Let your manager know if you have any questions.
This section outlines the process for managers to review, approve, and reimburse employee expenses through Xero.
Managers can access all pending expense claims from employees directly in the Xero dashboard. The status, date, merchant, amount, and category is visible for each request.
To review the details, managers simply click on the expense claim. Additional information like receipts, business purpose, and comments from the employee are shown. Managers should carefully validate that the merchant, date, amount, and category match the receipt and that the purchase was for legitimate business needs.
Once the manager finishes reviewing, they can either submit the expense for approval to be reimbursed or send it back to the employee for revision if any issues are found.
To approve an expense claim in Xero:
Approving expenses in Xero is important to officially record it in the system and enable reimbursement payments.
There are several options to reimburse employees for approved expenses in Xero:
Managers should choose the best reimbursement method based on company policies, employee preferences, and amount owed.
Once a reimbursement is complete through any payment method, managers can export a receipt from Xero to send to the employee, confirming the exact amount reimbursed and method of payment.
Here are the steps to export a reimbursement receipt:
Providing a formal receipt closes the loop so employees have record of reimbursements paid to them through Xero.
Beyond the basics, this section will highlight other capabilities in Xero for tailoring and enhancing the expense management process.
Xero allows businesses to customize expense policies to fit their needs. Administrators can set expenditure limits by employee level or expense type, require receipts for all or certain expenses, define eligible expense categories, and configure approval workflows based on things like employee seniority and expense amount.
Implementing clear expense policies in Xero ensures compliance, increases visibility into spending, and streamlines approvals. Key things businesses can specify include:
Setting robust expense policies upfront saves time, prevents improper spending, and enables seamless reimbursements.
Xero has deep integration between its expense management and payroll functions. When employees submit expenses for approval, the reimbursed amounts can feed directly into the next payroll run.
Key benefits include:
By integrating the systems, reimbursing employee expenses becomes a smooth, automated process with full visibility and simplified payments.
To maintain control over spending, Xero offers several key expense reports:
Reviewing these reports allows for:
With robust reporting, businesses can closely track employee spend, identify issues areas, and continuously improve their expense reimbursement processes.
To maximize the impact of your expense reimbursement system:
Establishing robust processes upfront ultimately saves time for finance teams and leads to fair, consistent reimbursement practices employees can rely on.
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