Reimbursement: a guide for employers

As a business owner in Singapore, you've likely had to manage employee reimbursements and expense claims. Reimbursements are used to repay employees who have incurred out-of-pocket expenses for work-related purchases. When done right, a business' reimbursement process help to maintain accurate financial records and foster a culture of fairness.

Understanding the common mistakes business owners make in their reimbursement processes can help you to craft policies for better management. Here, we’ll also share how Airwallex’s Expense Management solution can simplify reimbursements for all types of employee expenses.

What is a reimbursement? 

In Singapore’s business context, the definition of reimbursement is when a company repays employees for work-related expenses they’ve personally covered. This includes things like business travel, client lunches, or pantry items. The amount reimbursed should match the exact expense incurred.

What different types of reimbursements are there? 

There are various types of reimbursements that businesses need to process. Understanding these reimbursable expenses helps you create a fair expense policy. 

Business travel reimbursements

Business travel reimbursements cover actual expenses employees incur during work-related trips. These include costs such as airfares, accommodation, meals, and transportation. Employees submit receipts or claims for these expenses, and the company reimburses them based on the exact amount spent.

It’s important to note that per diem allowances work differently from travel reimbursements. A per-diem is a fixed daily amount provided to employees for each day of business travel, without the need for receipts. Many businesses prefer issuing per diem because giving a fixed allowance eliminates the need for detailed expense tracking and approval.

Unlike reimbursements, per diem allowances may be considered taxable income unless they meet the Inland Revenue Authority of Singapore (IRAS) guidelines for reasonable limits.¹

Airwallex streamlines the process of tracking and reimbursing business travel expenses. Airwallex Corporate Card, can be issued to employees, allowing them to spend directly from company funds in multiple currencies, with no international transaction fees. They provide better control over business spend with card controls and spend limits, and provide a real-time view of expenses. Employees who spend out-of-pocket can also easily submit expenses in their local currency and get reimbursed directly to their local bank accounts. Our Expense Management solution makes the submission and reimbursement process seamless for everyone.

Medical reimbursements

Medical reimbursements refer to the repayment employers provide to employees for medical expenses incurred, such as consultation fees or treatment costs. This ensures employees are reimbursed for illnesses or injuries covered under company policies.

According to Ministry of Manpower (MOM) regulations, employers must reimburse employees for medical consultation fees if the medical certificate (MC) is issued by a doctor from a public institution or one appointed by your company. This policy emphasises the employer's responsibility to support employees with medical costs during paid sick leave.²

Education and training reimbursements

Employee training and education reimbursements cover the costs of employees attending external training or educational programs approved by the company. These programmes are typically job-related and aim to enhance the employee’s performance in their role.

Entertainment and business meals reimbursements

This type of reimbursement refers to the repayment of expenses incurred during business-related entertainment, such as client meetings, business lunches, or team-building events. These costs are typically covered by managers initially and later reimbursed by the company as part of work-related expenses.

Disbursement vs reimbursement: What’s the difference?

In Singapore, disbursements and reimbursements differ in terms of who made the expense, and their Goods and Services Tax (GST) implications^. 3

Understanding GST implications: Principal vs agent

In Singapore, disbursements and reimbursements differ in how they are handled, particularly in relation to GST. The Inland Revenue Authority of Singapore (IRAS) provides clear guidance on distinguishing between the two when making GST claims.⁴

For any recovery of GST on expenses, you'll first have to look at whether you have acted as a principal or agent in purchasing the goods or services and incurring the expenses in the first place. In business transactions, companies may act either as a principal or an agent when incurring expenses. Understanding this distinction is crucial for determining how Goods and Services Tax (GST) applies.

• Principal: A company that incurs an expense directly as part of its business operations and owns the goods or services.

• Agent: A company that incurs an expense on behalf of another party (the principal) but does not take ownership of the goods or services.

GST Considerations

When GST does not apply

GST is generally not applicable when an agent is simply passing on a cost to the principal. (ie. an agency purchasing social media ads for a company). The agency cannot charge the company GST on the invoice portion relating to the initial ad spend expense that is being reimbursed, but the GST the agency paid to the social platform is not claimable by the principal company.

Additionally, GST does not apply in these cases:

• Employee reimbursements (e.g., a taxi fare for a business meeting)

• Fines or penalties (e.g., a parking fine for unauthorized parking during delivery)

• Exempt supplies under the GST Act⁵, such as:

  • Financial services

  • Digital payment tokens

  • Sale or rental of unfurnished residential properties

  • Investment precious metals

• Compensation payments, such as fees paid for breach of contract or penalties

When GST applies

GST is applicable in the following situations:

• When a principal incurs an expense directly as part of their taxable business activities (e.g., raw materials, business supplies, travel expenses).

• When the principal adds a markup to an expense before invoicing the customer (e.g., including the cost of specialized packaging as part of an invoice to a client).

• On commission payments to agencies or third parties providing services to the company.

GST Tax claims

Likewise, when making GST claims, it is important to distinguish whether you are acting as an agent or as a principal.

As an agent, you cannot claim GST because the supply is made to the principal, not to you as the agent.

As a principal, you can claim GST with IRAS in the following situations:

• If you pay business expenses directly as part of your business operations and they are incurred for the purpose of generating income. Examples include travel expenses and office supplies.

• If you reimburse employees for expenses they incurred while conducting business activities on behalf of the company.

• If you pay commissions to agencies or third parties that provide services to your company

How to create an effective expense reimbursement policy 

A reimbursement policy is a set of guidelines that outline which categories are eligible for repayment and how employees can claim back work-related expenses. 

Creating a clear policy ensures employees are fairly compensated while helping the company manage costs. Here are some best practice tips for building your expense policy:

Clearly define eligible expense categories

Start by outlining broad categories of expenses your employees can claim, such as travel or client entertainment. For many companies, travel expenses often make up the bulk of claims. It’s important to provide clear guidelines, like allowable transport modes and accommodation standards. Defining these categories upfront prevents confusion and ensures employees know what’s covered.

Create a pre-approval process

Implementing a pre-approval process ensures that major expenses like flights are approved before employees pay for them. This step helps businesses manage costs better and ensures employees feel confident about spending on behalf of the company.  

For example, a pre-approval process can state that expenses below S$500 can proceed without formal pre-approval but must submit receipts for review. For amounts above S$500, employees must submit a detailed request, including the expense purpose and estimated cost, which requires manager approval before making the purchase.

Create fool-proof instructions for claim submissions

Provide employees with clear instructions on how to submit their claims, including forms, documentation, and deadlines. For example, you might require claims to be submitted within 7 days of the expense. Setting expectations around timing ensures a smooth workflow and keeps financial records up-to-date.

You can simplify claims submission by issuing virtual cards to employees. Virtual cards come with a dashboard that automatically tracks and categorises all expenses in one place. Instead of filling out complex forms, employees can use the Airwallex mobile app to upload pictures of receipts and easily submit expenses. With Airwallex’s Expense Management, you can also set up and define multiple approval layers based on spend thresholds and set specific approvers at each layer to ensure compliance while minimising delays. This eliminates forgotten purchases and delayed submissions, making the process faster and stress-free for everyone. 

Set guardrails against expense fraud

Fraudulent expense claims may seem unlikely, but they can lead to significant financial losses. A global study examining 2,110 workplace fraud cases uncovered a staggering US$3.6 billion lost to occupational fraud – instances where employees misused company resources^.6 

Safeguards like detailed receipts can prevent abuse of the reimbursement policy. Expense fraud can also be prevented through digital solutions like Airwallex Spend. It allows you to set spend limits and controls on your corporate cards and lets you review expenses in real-time. By providing clear spending controls and instant visibility, Expense Management Software can help you stay on top of expenses while promoting transparency and employee accountability.

Common employee reimbursement mistakes to fix

Reimbursing employee expenses might seem straightforward, but many companies unintentionally make mistakes that complicate the process. These errors can lead to inefficiencies and even financial losses if not addressed properly.

Using manual expense management processes

The best expense management policy won’t be effective if it’s implemented using manual processes. According to the Airwallex Spend Management Report, 40% of businesses still use manual spreadsheets and paper forms to process employee expenses.⁷ This leaves room for incorrect data entry or missed information. Manual systems also take up an employee’s valuable time, especially if receipts get misplaced or lost.

Poor communication of reimbursement policies

Don’t assume that all employees are familiar with the spend policies. Without clear communication and proper education, employees might unintentionally submit incorrect claims or violate policy guidelines.

Share the policy through easy-to-access channels like employee handbooks, intranet portals, or onboarding sessions. Keep communication open and address any questions or concerns quickly to ensure everyone feels confident about the process. 

Failing to communicate ineligible expenses

Even if your employees know which expenses are covered, it’s important to be clear about items are off-limits. In a business travel scenario, non-eligible expenses can include personal grooming costs like haircuts, or fines from traffic violations. 

Clearly outlining ineligible expenses alongside valid ones avoids misunderstandings or delays in processing expense submissions.  

Lack of clear spend controls

Implementing spend controls ensures employee accountability and helps businesses stay on track with their budgets. Without defined spend limits, employees may unintentionally exceed budgets or make purchases that don’t align with company policies.

Slow international reimbursements 

Slow international payments can be a hidden issue for businesses managing reimbursements for overseas employees. The delays are especially pronounced when businesses use multiple bank accounts in different countries. This fragmented setup often requires time-consuming steps like transferring funds between accounts and manual workflows, all of which contribute to delays.  Adopting a centralised Expense Management and payment solution can help businesses avoid these bottlenecks and ensure timely reimbursements.

Simplify business expenses management and employee reimbursements with Airwallex

As your business grows, managing employee expenses and reimbursements becomes increasingly challenging. A unified expense management and payments platform like Airwallex can simplify the entire process. 

Airwallex gives you a single platform for managing and paying global company expenses in multiple currencies. You can create separate accounts for each of your entities to accurately attribute expenses, while managing expenses across all entities in one platform.  On top of that, our platform comes with the following time-saving features:

• Multi-currency Corporate Cards. With our VISA corporate debit cards, employees can handle multi-currency expenses like social media ad spend or business travel without hidden foreign transaction fees. Airwallex Corporate Cards come with built-in Expense Management that eliminates the hassle of manual expense claims. In a single dashboard, you can set spending limits per card, view, approve expenses in real-time, and instantly freeze or cancel cards.

• Automatic receipt scanning for reimbursements. With Airwallex Expense Management solution, employees can submit expenses on-the-go by scanning and uploading receipts via the Airwallex app. OCR technology automatically populates fields, which eliminates the hassle of manual data entry.

• Batch payouts in multiple currencies. Instead of paying employees one at a time, you can pay up to 1,000 employees in 150+ countries at once with Airwallex Batch Transfers. Simply copy-paste your employees’ payment details in an intuitive Excel file. Airwallex will also automate currency conversions so that your employee receives the full amount in their local currency.

• AI-powered expense categorisation. Airwallex automatically categorises expenses and identifies vendors based on card transactions, using insights from your spending history to improve accuracy over time.

• Speed up monthly reconciliation. Airwallex can be integrated into accounting software like Quickbooks or Xero. Reimbursements approved and paid out through Airwallex get automatically synced to your accounting software to speed up the monthly reconciliation process. Airwallex also supports bill payments in the same way, with paid invoices automatically syncing with your accounting software.

Change the way you manage corporate expenses today. Create a free Airwallex Business Account and implement an effective reimbursement policy for your growing team.

Sources

1. https://www.iras.gov.sg/taxes/individual-income-tax/employers/understanding-the-tax-treatment/per-diem-allowance

2. https://www.mom.gov.sg/employment-practices/leave/sick-leave/medical-reimbursements-and-salary

3. https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/charging-gst-(output-tax)/when-is-gst-not-charged/supplies-exempt-from-gst

4. https://www.iras.gov.sg/media/docs/default-source/e-tax/etax-guide_guide-on-reimbursement-and-disbursement-of-expenses_2019-12-30.pdf?sfvrsn=3254880e_27

5. https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/charging-gst-(output-tax)/when-is-gst-not-charged/supplies-exempt-from-gst?utm_medium=blog&utm_campaign=disbursement-vs-reimbursement-meaning-and-difference

6. https://www.straitstimes.com/singapore/fraud-from-within-employers-cautioned-to-look-out-for-bogus-expense-claims

7. https://www.airwallex.com/newsroom/uk-finance-leaders-reveal-friction-in-global-spend-and-expense-management

This publication does not constitute legal, tax, or professional advice from Airwallex nor substitute seeking such advice, and makes no express or implied representations / warranties / guarantees regarding content accuracy, completeness, or currency. If you would like to request an update, feel free to contact us at [[email protected]]. Airwallex (Singapore) Pte. Ltd. (201626561Z) is licensed as a Major Payment Institution and regulated by the Monetary Authority of Singapore.