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Analysis Week 9

Is Your Reimbursement Policy Inclusive or Exclusive?

We’ve all come to expect that business expenses are a part of the job – an inconvenient but necessary function of working, especially in industries that require a lot of travel. 

To limit expenses or prevent them from getting out of control, companies tend to allow employees to spend what they need and reimburse them for those charges later. But, in an increasingly cash-strapped environment, do the cost savings justify the potential hardship for talented employees?

In an economy where almost 80 percent of  U.S. workers report that they’re living paycheck to paycheck, forcing employees to cover business costs up front can have a disastrous effect on an employee’s ability to meet personal and family needs. Even when employees can cover the expenses, some resort to shifting funds around, delaying payments on personal obligations, borrowing money from friends or family, or using credit cards and accruing more debt–all of which are unreasonable burdens for expenses that  businesses  could front.

And while some employees may be able to manage it, companies should consider what talent they're missing out on, solely because some workers are unable to handle this burden. For example, employees who are from lower-income backgrounds often don’t have savings, credit or family to fall back on. Employees who have family and dependent responsibilities, and employees who require expensive ongoing medical care due to a disability or chronic medical condition can also be disadvantaged by these policies.

Many employees privately report that they’ve struggled or had to resort to drastic measures to cover business expenses, if they could cover them at all. 

“On several occasions, I’ve been required to front anywhere from three to four figures in order to cover a mandatory work trip. Even though it wasn’t in policy, it was implied that I would have to stay in the same hotels as senior executives. despite the fact that they were more costly than the hotels I would’ve selected,” says Jonathan*, a mid-level manager at a national not-for-profit. 

“Those same senior members had their expenses covered with a company card that directors receive at the organization, sparing them the burden of having to front the money. These were charges that were only affordable through credit cards – not debit cards or cash on hand. In many cases, it was a week’s worth of pay and, at the time, I was working paycheck to paycheck. I was even avoiding professional development opportunities for that reason, and I have co-workers that are still opting out of work trips because they can’t afford to front the costs,” he adds.

It’s not only  junior professionals or professionals at not-for-profits that are struggling with this. Even high-earning executives in the private sector are experiencing challenges.  

Robert*, a former executive for a U.S. bank, recalls how the company did not have corporate cards and the burden that placed on him.  “As the sole income source for my family, it was very difficult to manage cash flow when work travel expenses had to be considered–and when unexpected travel was requested, even more so.  “Colleagues would say, ‘Put it on your credit card,’ as if they were responsible for my budget and home expenses. It was never that simple and credit cards present their own hurdles [such as interest], which wasn’t covered in reimbursement pay.”  

When you factor in the well-documented racial and gender income and wealth gaps, reimbursement policies can subtly contribute to less diversity in leadership. If conferences, professional development opportunities, business travel (which offer critical opportunities for relationship-building) and similar growth opportunities remain out of reach for some employees, a company’s diversity goals could be put at risk.

Companies can avoid these issues by altering  their structure for managing expenses. Here are a few suggestions:  

  1. Companies can provide small business or corporate cards for every staff member who incurs expenses – or if the employee only occasionally has expenses, make a card available for them at those times.

  2. Companies can offer an advance of the anticipated travel amount. Employees can use it for their expenses, provide documentation of what was spent, and return the balance.

  3. Companies can opt to cover larger expenses, such as flights and hotels, and provide prepaid debit cards for spending on meals or other incidentals, which would still keep the costs manageable (In a similar model, the CEO of Github recently shared on Twitter that every employee is given a prepaid debit card to use for their own professional development and advancement.)

Restructuring the expense system may not feel like a priority. But it should be once leaders consider who might be left behind. There are reasonable options for ensuring that the financial burdens of a business don’t fall on the backs of the people who work there. It’s a matter of prioritizing people and creating policies that minimize that burden. 

*Names changed for anonymity because of the sensitive nature of the topic. 

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