Reimbursement

Reimbursement means compensation. In case an employee spends his or her own money for the company-related things, the company is obligated to reimburse all the expenses. It isn’t necessary to be an employee, it also may be a customer or another party. Business expenses are subject to reimbursement, as well as insurance costs and overpaid taxes. The main difference between usual compensation and reimbursement is that reimbursement is nontaxable income, while compensation is subject to taxation.

Different types of Reimbursement

There is a concept of expenses, which are called out-of-pocket expenses. It means that employees pay with their own money in case a company’s need appears. Such out-of-pocket expenses are subject to reimbursement. In general, reimbursement has to do with expenses that a business requires. Normally, such expenses are business travel expenses. In its turn, business travel requires hotel expenses, food expenses, transport expenses, etc.

For sure, there are different types of expenses. An organization can reimburse tuition that an employee pays for his or her college. In general, reimbursement has three following types:

Insurance. Reimbursement may be useful not only in the business field, but also in the field of insurance. There are urgent and grave cases in which a policyholder has to go to a doctor immediately, thus, he or she wouldn’t have enough time to inform the insurer about the visit and ask what cases are subject to reimbursement. Sometimes, in such cases, the policyholder has no choice, but to incur out-of-pocket expenses.

In some insurance cases, a policyholder must pay out-of-pocket expenses ahead of asking for reimbursement. For example, it’s extremely popular in the case of fitness insurance. If a policyholder pays properly and is distinguished by the active taking part in a program, an insurer will gladly reimburse some amount of money for each year.

Thus, both analyzed cases are subject to reimbursement and the policyholder has all rights to ask for it.

Taxes. Taxes are also subject to reimbursement, since earlier a person paid more money than he had to and the return of money is a kind of reimbursement for a former overpayment. It works with state and federal level taxes. Most people don’t need to monitor whether the taxes they must pay are actually paid or not. As a rule, their employer takes care of this kind of payments through payroll deductions. However, it doesn’t consider the credits that a taxpayer has rights on. Thus, taxpayers are subject to tax refunds, the tax refund is a kind of reimbursement.

Legal. The most common case of reimbursement in the legal sector is alimony. Alimony refers to a kind of payment which an ex-spouse is obligated to make according to the judge's decision in case of divorce. For example, one of the spouses in a divorce worked hard to provide the second spouse the opportunity to study, thus, in case the second spouse graduated and works already, the first one has all rights to get reimbursement.

Reimbursement rate

In some companies, the rate of reimbursement an employee may get is calculated according to the per diem rates. It refers to the per diem payments, i.e. amount of money, which an employee receives every day of a business trip in order to cover business-related expenses. There may be bigger reimbursement rates for people with high managerial positions or fixed reimbursement for all kinds of employees.

Exceptional cases

The paying part of the reimbursement procedure willingly covers only legitimate cases that are subject to reimbursement. However, there are special cases in which people may fake their expenses. They may file for higher expenses or for non-existent expenses. Thus, an organization that is in charge of reimbursement procedures must have an internal control system, which prevents any attempts of deception.

There are other cases, for sure. Unfortunately, frauds are especially common in the banking field. For instance, an account holder finds out that he or she suffered from identity theft or data breach. Thus, a bank has to study the case to make sure that there is a case of fraud from third party interference, and the account holder himself or herself isn’t the criminal.

Example

For example, you work as a programmer at an IT-company. Your company created an innovative product and now craves to present it at an exceedingly important conference in another country. It’s crucial for the company that the product will be in its perfect state and in case something goes wrong the product will be fixed immediately. For these reasons, the company asks you to accompany the product at the conference. Thus, you buy plane tickets, book a hotel room and buy food for yourself during the business trip. In case all these expenses were made with your own money, the company must reimburse it upon your return.